Master Thesis
The relation between Corporate Social Responsibility
and performance, through the effect of reputation:
The cases of “Brent Spar” and “Deepwater Horizon”
Author: Eleni Panteli
Dual Master Award in Advance International Business Management
Newcastle University,
Business School,
Supervisor: John Leopold
University of Groningen,
The relation between Corporate Social Responsibility and performance,
through the effect of reputation:
The cases of “Brent Spar” and “Deepwater Horizon”
Abstract
By exploring corporate social responsibility, this paper presents a theoretical framework pertaining, firstly to the effect of socially responsible behaviour on reputation, and secondly to the effect of reputation of firm’s performance. Using a case study approach this study engages with the “Brent Spar” and the “Deepwater Horizon” incidents to investigate the extent to which non-business issues are correlated with performance. The findings of the study fail to provide any evidence related to the specific correlation, however concludes that irresponsibility impacts negatively a firm’s reputation, an interaction which is moderated by the legal environment and the degree of multinationality of the firm.
Key Words: Corporate Social Responsibility, Performance, Reputation, Brent Spar,
Deepwater Horizon
Contents
1. Introduction……….……….………….…4
1.1 Corporate Social Responsibility ... 4
1.2 Focus of the study ... 5
2. Literature Review ... 7
2.1 Corporate Social Responsibility ... 7
2.2 Reputation ... 10 2.3 CSR – Reputation ... 11 2.4 Reputation – Performance ... 11 2.5 CSR – Performance ... 12 2.6 Multinationality ... 13 2.7 Legal Environment ... 14 3. Theoretical Framework ... 16
3.1 Corporate Social Responsibility ... 16
3.2 Link between CSR and performance: Reputation ... 19
3.3 Performance ... 21 3.4 Moderating Factors ... 22 4. Research Design ... 24 4.1 Research Method ... 24 4.2 Data ... 25 5. Case Studies ... 26 5.1 Brent Spar ... 26
5.2 Brent Spar Analysis ... 28
5.3 Deepwater Horizon ... 35
5.4 Deepwater Horizon Analysis ... 39
1. Introduction
1.1 Corporate Social Responsibility
The notion of Corporate Social Responsibility (CSR), the ethical behaviour of firms, has been dramatically evolved over the last 50 years. It has been transformed from a non-substantial idea, to a rational and widely accepted concept in the business world (Lee, 2008). CSR originated from corporations during the Great Depression, in an effort to re-obtain the trust of people (Casarow, 2009). In addition, many firms, especially large-size, establish formal written ethics codes, which should be publicised to the employees. However, the employees are often not notified about the existence of ethics codes, which are usually too general, vague, and therefore difficult to be used. (Collines, 2000) Although ethical activities are often absent from many firms, studies report that CSR can provide a firm with major benefits, such as competitive advantage (Michael, 2003). At this point it is essential to define Corporate Social Responsibility. Michael (2003) provides a conventional definition of CSR, according to which while the firm’s main goal is to maximise profits, CSR’s purpose is the “continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large” (Michael, 2003). The specific definition implies that the firm should consider not only the shareholders for decision making, but other components of a firm such as employees and customers.
The significance of modern CSR lies in the fact that has been correlated with organisational goals such as reputation and performance (Lee, 2008). Over the last decades, the ambivalent type of association (if any) between CSR and performance has been on the spotlight of many researchers (e.g. McWilliams and Siegel, 2000; Abowd et al., 1990). However, the theory of CSR suggests that there is a positive linkage between CSR and performance (e.g. Lyon and Maxwell, 2008). Regarding reputation, the perceptions are clearer, as it is supported that CSR activities shape positively a firm’s reputation (e.g. Siltaoja, 2006; Fombrun and Shanley, 1990).
This study engages with the issue of CSR and its impact on these organisational characteristics: firstly on reputation and secondly on performance. Specifically, the purpose of this study is to explore the effect of oil firms’ actions, which are not related to the business procedures, on the performance of the firms, using two case studies which will be introduced in the next section. The study follows the stakeholder approach, focusing on customers, shareholders, and the public.
Therefore, addressing to firms’ managers as the audience, the focus of the proposal is based on the following research question:
“To what extent the socially (ir)responsible behaviour applied by a firm can impact its performance?”.
The rest of the paper investigates this research question, and builds up the direction of the dissertation.
1.2 Focus of the study
The focus of this study is the oil industry and specifically two of the most dominant firms in the specific industry: the Royal Dutch/Shell Group (Shell) and BP. In details, the research question and the propositions will be explored using two case studies: the “Brent Spar” and “Deepwater Horizon” incidents of Shell and BP respectively.
studies in order to decide the environmentally best choice for the disposal. After three years, in 1994 the group concluded that deep sea disposal was the best option. Although, deep sea disposal was allowed by the British government, initially Greenpeace, and later the public in continental Europe reacted about this decision of Shell UK. Following the reactions and the occupancy of Brent Spar by Greenpeace, Shell announced in 1995 that the deep sea disposal was cancelled even though the group still supported its initial option as the best available. (Jordan, 2001)
The second case is a recent incident of oil spill in the Gulf of Mexico, involving the oil firm BP. The Deepwater Horizon was a huge offshore drilling machine, owned by BP’s partner Transocean and operated in Macondo well. In April 2010 it was exploded causing the largest offshore oil spill in the US. The explosion killed 11 workers, and injured other 17. In addition, the spill, which lasted around three months, caused serious environmental damage to the area, and specifically many species and parks are threatened. This incident forced BP to spend more than 3 billion dollars, in order to stop the spill and in general to manage the crisis. (Maass, 2011)
2. Literature Review
2.1 Corporate Social Responsibility
Although many studies have been conducted regarding CSR, there is no common definition or interpretation. The multiple definitions led to confusion regarding the notion of CSR (Lee, 2008; Siltaoja, 2006). This confusion according to Göbbels (2002) may derive from language problems since the term “social responsibility” often implies only social issues. In order to avoid this confusion, he suggests it should be named “societal accountability”. While a typical definition of CSR was provided in the introduction, a more appropriate for this study definition should be introduced at this point. I use the definition developed by Campbell (2007), which reflects on the “minimum behavioural standards” that a firm should follow in order to consider responsible. These standards are the following: (1) Corporations “must not knowingly do anything that could harm their stakeholders” and (2) even if they do “they must rectify it whenever the harm is discovered and brought to their attention”. This definition leans on the institutional constraints to secure responsible behaviour.
Although some regulations were formed regarding the application of ethical behaviour, a real socially responsible approach of a firm would be to choose to adopt ethical behaviour, not to apply it only because it is forced by the law (Doane, 2005).
2.1.1 Characteristics of CSR
The importance of CSR derives from the fact that just the goal of firms for profit ignores factors whose absence may harm the firm’s performance or success, such as the social interests of the employees, customers and debtors (Michael, 2003). On the other hand, solely doing good is not enough. Profit is always important for a firm in order to be able to survive in the market (Doane, 2005). As Campbell (2007) supports, the existence of a corporation is based on profit and shareholder value maximisation, and this may drive corporations to adopt irresponsible behaviour in order to achieve their goals.
behaviour in order to achieve social responsibility. The specific model, although is one of the most popular with major attention by academics, it has a main disadvantage, common to all the other CSR models: the impossibility of empirically testing the model (Lee, 2008). Another model, developed by Garriga and Melé (2004), by reflecting on the tension between profits, power, morality and business, views CSR from four different angles: instrumental, political, integrative and ethical. Moreover, Siltaoja (2006) reports the “three-dimensional division” of economic, social and environmental responsibility as a measurement of corporate responsibility. Based on a similar division, Van Marrewijk (2003) presents a model which suggests that CSR is a function of profit, people and the planet.
According the United Nations’ (UN) principles, a firm should protect human rights, consider the labour’s rights and the natural environment, and operate against corruption (Global Compact, 2008). In addition, large firms have developed their own core elements of behaviour they consider ethical, usually including environmental issues and respect of human rights. Those firms are committed to apply the core elements of CSR to all their operations.
2.1.2 Theoretical Perspective of CSR
The engagement of more and more firms in CSR the last decades, led to the development of multiple theories on the issue of CSR (McWilliams et al., 2006). The two dominant theories on CSR are approaches to strategic management: the stakeholder, and the agency (or shareholder) theories.
2.1.2.1 Agency Theory
The agency (or shareholder) theory, illustrates a negative perspective of CSR in a firm. According to the agency theory, business has a sole social responsibility: to “increase its profits as long as it stays within the rules of the game” (Friedman, 1970). As Friedman stated, the resources of a firm should be solely allocated for activities which lead to a profit and value for shareholders. Therefore, any adaptation of CSR in a firm leads to a misuse of the firm’s resources, and reduces shareholder wealth (McWilliams et al., 2006). While this theory stresses the tension between managers’ and shareholders’ benefits, it suggests that managers’ primary responsibility is to satisfy the shareholders’ needs, and consider stakeholders’ interest only in the case that shareholders can gain advantage (Spence, 2011).
2.1.2.2 Stakeholder Theory
The agency theory emphasises the relationship between manager and shareholders, it ignores the nature of interaction between the stakeholders of a firm (Hill and Jones, 1992). This interaction is the main characteristic of an approach to strategic management, the stakeholder theory. Freeman (2010), developed and defined stakeholder as “any group or individual who is affected by or can affect the achievement of an organisation’s objectives”, and “have a legitimate claim on the firm”. According to Freeman and McVea (2001), the term stakeholder was established in order to develop strategic management in perspectives other than solely economic. Therefore, the stakeholder theory, “is a theory of organisational management and ethics” (Phillips et al., 2003). In contrast to other theories of strategic management, the stakeholder theory has an explicit moral content, since the moral ideas and values are promoted as the central element of management in the firm (Phillips et al., 2003).
1992). In addition Rowe (2006) states that the way in which the relationships with internal and external stakeholders are being managed shape the reputation of the firm. As a result, managers should consider, manage and integrate the needs, the interests and the relationships between all the stakeholders, in order to ensure the maintenance of their support to the firm and the long-term performance of the firm (McWilliams et al., 2006; Freeman and McVea, 2001). The involvement in specific CSR activities that non-financial stakeholders conceive as important, along with ethical behaviour, could retain their commitment to the firm (McWilliams et al., 2006).
2.2 Reputation
Reputation in the economic literature is described as a significant aspect of the economic and business environment. Dobson (1989) suggests that reputation is one of the most important intangible resources a firm can possess. Similarly, other authors view reputation as a significant competitive advantage that the firm could achieve (e.g. Siltaoja, 2006; Deephouse, 2000; Fombrun, 1998). The importance of reputation lies in the fact that, it indicates the current trends of a firm, and therefore, can provide information regarding the firm’s future attitude (Siltaoja, 2006). As a result, reputation can increase the amount of stakeholders and investors in a firm (Dowling, 2006), through its effect on credibility and reliability. Therefore, through reputation the firm has the possibility, not only to attract new investors, but also to attract more customers (Michael, 2003).
Schwaiger (2004), supports that reputation is a double-dimensional issue, divided into a cognitive and an affective component. In contrast, Siltaoja (2006) views reputation as a “multidimensional subject”, which can be conceived in multiple ways by the public, depending on the value priorities of the individuals. The author’s findings suggest that reputation is depended on ethics and morality, history, efficiency, the product, public image and human resource management (HRM). Fombrun (1998), identifies similar criteria of reputation including financial and environmental performance, community involvement and employee treatment. Furthermore, Dollinger et al. (1997) distinguish into managerial, financial and product aspects of reputation. The UN numbered seven dimensions of reputation, namely leadership, performance, products/services, innovation, workplace, governance and citizenship, of which the three latter are viewed as the most important determinants of reputation (Mirvis, 2009). Therefore, plenty of theoretical or empirical studies on the determinants of reputation suggest that reputation is specified in a large degree by the socially responsible behaviour of firms.
2.3 CSR – Reputation
A considerable amount of literature supports positive correlation between CSR and reputation. For instance, Fombrun and Shanley (1990) reported a positive relation between reputation and CSR, according to which CSR is determined by the charitable activities of the firms. Moreover, Williams and Barrett (2000), reports that firm’s reputation and philanthropy are positively associated. In an earlier study, Bear et al. (2010), using regression analysis, showed that CSR is positively correlated to corporate reputation. De Castro et al. (2006) show empirically that a corporation’s reputation is a function of social reputation, which is formed by CSR and financial power. The authors added that both the level of CSR and reputation in a firm are affected by the number of female presence in the board of directors. This is consistent with Rowe (2006), who argues that the sensitivity in which stakeholders are managed, influence reputation.
2.4 Reputation – Performance
reputation is one of the firm’s attributes that are considered for investment decisions (Bear et al., 2010). Similarly, Siltaoja (2006), reports that positive reputation attracts other stakeholders as well, through its effect on trust. Brammer and Pavelin (2004) suggest a complex relation between reputation and performance, which is moderated by firm size and the type of industry. In addition, Dowling (2006) explains that reputation assists in the promotion of products in new markets, through its effect on corporate branding. As a result, literature suggests that reputation can have a positive effect on firm’s performance.
2.5 CSR – Performance
The link between CSR and performance has been investigated in depth by plenty of authors in an attempt to explore the results of CSR on a firm. Lee (2008) reports the trend of the last decade to consider not only the financial, but also the social performance to define the “corporate performance” of a firm. Most of the theoretical studies state that there is a positive relation between the two variables. For example, McWilliams et al. (2006), view social responsibility as a “strategic resource” of a firm which should be used for the achievement of greater performance. Moreover, Porter and Kramer (2006) associate CSR with a firm’s competitive advantage.
However, empirical studies show variation on the results. Lyon and Maxwell (2008) found that a firm can gain more profits by engaging in environmentally responsible activities. In contrast, the research of Wagner et al. (2002) shows a negative link between environmental and economic performance, unlikely the majority of similar studies (e.g. Russo and Fouts, 1997). McWilliams and Siegel (2000), reported neutral correlation between CSR and financial performance, when the latter is controlled by the variable “intensity of R&D investment”. Furthermore, a neutral effect on performance was found using regression analysis in the study of Aupperle et al. (1985). Considering the HR decisions and stock prices, Abowd et al. (1990) did not observe any positive or negative relation.
from the variety of definitions of both CSR and performance, the variety of research design and samples used, and the time period of the study (McWilliams et al., 2006). Since the perception regarding social responsibility of the firm has changed over time, is logical to assume that in different times, the link between CSR and performance was not always the same (Lee, 2008). Moreover, as McWilliams et al. (2006) suggest sometimes performance is measured by inappropriate variables such as the stock price, which can lead to inconsistent findings.
2.6 Multinationality
2.7 Legal Environment
2.7.1 Institutions and Political Economy
The last years, attention has been given to different types of market economy by the literature, which is mainly based on the framework of Hall and Soskice (e.g. Akkermans et al., 2009; Pistor, 2005). The framework of Hall and Soskice (2001) about the “Varieties of Capitalism” moves forward from the classical perspectives of institutional variation regarding the different economic systems. Specifically, it views the firms as the central element of “corporate capitalism” and aims to link the political economy to business studies.
The authors, based on how firms react on the coordination problems they may encounter, define two types of political economies: the liberal market economy (LME) and the coordinated market economy (CME). LMEs are the markets in which the firms use hierarchies and competitive market arrangements for the coordination of their actions (i.e. the UK and US). In this type of political economy, interactions are not constrained by government regulation, and the supply and demand of products and services, control the prices in a competitive environment. On the other hand, firms based in a CME lean on non-market relationships for their coordination and for acquiring their core competencies in a cooperative, instead of competitive environment (i.e. Germany, Japan).
Markets can be viewed as institutions (North, 1990) which support different relationships in the context of competition. The importance of the institutions of a country lies in the fact that the support they provide is necessary for the coordination since the market forces are inadequate for moderating the relationships among firms in the market.
As a result, formal institutions, incorporating the legal frameworks of a country, are closely correlated to the political economy of the specific country. Nevertheless, except the formal institutions, the influence of informal institutions and the cultural understandings in a market is significant, in order to achieve balance on the firm’s interactions.
2.7.2 Legal Origin
The legal framework of a country can be defined not only by its political market economy, but also by its legal origin. The legal origin of a country can define its direction regarding the business legislation (Ahlering and Deakin, 2007), and form institutions without considering politics or efficiency (Botero et al., 2004). While many authors argue that the type legal origin can determine the economic development in a country (e.g. La Porta et al., 1998), others support that both common and civil law can perform the same levels of growth (e.g. Ahlering and Deakin, 2007).
3. Theoretical Framework
This section describes the conceptual model, which develops the theoretical framework of the paper. The framework illustrates how the social responsibility of a firm influences its performance through the effect of reputation. For the purpose of this paper, it is suggested that increased involvement in CSR activities can develop the (positive) reputation of a firm, which can be a facilitator for advanced performance. On the other hand, the firm’s irresponsible behaviour can harm its reputation, which can ruin the firm’s performance. Moreover, I argue that the relation between CSR and reputation can be moderated by the effect of the legal environment and by the level of multinationality of the firm.
The framework is developed from the perspective of Freeman’s (2010) stakeholder approach. Specifically, the effect of the CSR on firm’s performance through the effect of reputation will be investigated considering the firm’s shareholders, customers and the general public. Other related components such as suppliers, employees, and government are out of this study’s scope.
CSR · Related people · Environment · Safety Reputation · Publicity · Communication Strategy Performance · Sales · Stock Prices - Legal environment - Multinationality
3.1 Corporate Social Responsibility
are: related people, environment and safety. These three dimensions compromise the ethical responsibility of the firm, though in order to be responsible, a firm should not only comply with the related principles for each of the dimension, but also with legal constraints related to them.
3.1.1 Related People
This characteristic refers to the employees, customers, suppliers, the government, the community and to the way they are being managed and treated by the firm. The employees are responsible for the application of the firm’s ethic’s policy, and therefore their job satisfaction and security is significant (Siltaoja, 2006). Job satisfaction could be achieved through HRM, along with the involvement of the firm in CSR activities (McWilliams et al., 2006). Moreover, one major obligation of leadership is to inform the employees about the main aspects of ethical behaviour and the firm’s ethics policy. As a result, the quality and the abilities of HRM are important aspects for the maintenance or creation of social responsibility (Merefield and Blewitt, 2008), through its effect on the employees. In parallel, the individual ethical behaviour of each employee and their compliance with the regulations is important for the achievement of the firm’s goals. In order to be able to apply the firm’s policy, employees should be treated with respect, without discrimination and without violating the human rights. The same respect should be showed to the customers in regard the quality and price of the services (Strike at al., 2007). In addition the firm should not mislead them with means such as lies in advertising. In general, a firm should be honest with all the related people, as honesty it is view as an important attribute of CSR (O’Connor and Meister, 2008).
the authors concluded that firms with good performance on the variable of people usually have good financial performance.
3.1.2 Environment
The environmental aspect of CSR is considered being one of the most important, and gets major attention in firms’ policies, and in the business literature (e.g. Lamberti and Lettieri, 2009; Lyon and Maxwell, 2008). Due to major changes in the environment, such as global warming, climate changes and pollution, customers and governments expect from the firms, especially the large ones, to be environmentally responsible. Therefore, due to market forces such as demand and supply, the involvement of firms in environmental issues is being increased (Lyon and Maxwell, 2008). Nowadays, firms should engage in environmental friendly activities such as using sustainable resources for their products, saving energy, and reducing pollution. According to Siltaoja (2006), the importance of the environmental aspect lies to the fact that people view maintaining healthy environment as an obligation of firms for next generations.
In other words, the degree of commitment of a firm in the protection of the environment, as well as the exclusion from activities that could damage the environment, determine the extent to which a firm is acting socially responsible.
3.1.3 Safety
This characteristic is significant for the ethical behaviour of the firm, as it deals with the other two characteristics: human resources and environment. Firstly, it is important to preserve a save working environment for employees, as well as the business’ operations. Secondly, it is critical for the firms to undertake safety policies in order to avoid involvement in incidents that can harm or cause problems to the environment. In addition, safety refers to the products or services which a firm offers. The quality and the security of the firm’s products are important as both the safety of the environment and customers’ health, are affected.
profitable for a firm and therefore firms may seek to violate some standard safety procedures (Ahmed, 2006).
3.2 Link between CSR and performance: Reputation
The link between CSR and reputation has been investigated by various studies (e.g. Siltaoja, 2006; Zyglidopoulos, 2001). In general, studies show that ethical behaviour can be an advertisement of the firm, which can obtain good, positive reputation (Bouquet and Deutsch, 2008).
For the purpose of this paper, it is suggested that reputation and performance are closely linked to each other. According to Siltaoja (2006), positive reputation of a firm develops trust to stakeholders, who view the firm as a reliable investment. Therefore, reputation can improve the relation of a firm with its investors and bankers, and can obtain access to the investor’s capital. Similarly, reputation is expected to have an effect on customers’ decision in respect to the services/products to be selected/purchased.
Considering the above statements, the following proposition is formed:
P1: The more a firm is engaged in irresponsible activities, the more likely is to gain negative reputation in the local and international market
In the context of this study, the parameters which determine the reputation that a firm possesses are the publicity and the communication strategy of the firm. Although, there are a variety of parameters that can be criteria of reputation, these two are the most relevant for the study.
3.2.1 Publicity
acceptable by the society – legitimacy theory (Lindblom, 1994). In the case that the public’s perceptions are in line with a firm’s policies and actions, it is likely for the firm to form a positive reputation.
In a high degree, the publicity of a firm is based on the attraction of the media to persons with leading positions, such as CEOs (Maass, 2011). Moreover, it is argued that the size of the firm and the level of responsibility impact on the attention that a firm obtains from the media (Jordan, 2001). Specifically, large firms and firms with high level either of responsibility or irresponsibility, are those which gain significant publicity. The extent to which a firm is exposed to the media can affect the transparency of the firm. According to Honey (2009), when a firm is more transparent, its reputation is affected more, and therefore, the firm attracts more new stakeholders. Regarding the type of responsibility, it is argued that environmental issues obtain more negative attention of the media (Islam and Deegan, 2010).
3.2.2 Communication Strategy
influence the firm, which according Honey (2009) is one of the determinants of stakeholders’ power (p. 33).
Although the majority of the firms claim that they have a communication policy, in reality not all of them retain formal plan; therefore the communication policy is rather abstract. In addition, the firms tend to apply reactive communication with their stakeholders in case of a crisis, instead of proactive (Honey, 2009, p. 34). Therefore, the firm is exposed to reputation risk. Furthermore, the use of technological means can be helpful the efforts of a firm to enhance its communications. Specifically, the internet may provide opportunities to the firms to communicate and interact easier with their stakeholders, and to gain popularity by on-line activities (Lubbers, 1998).
To sum up, the policies chosen for the communication function can be crucial for building and maintaining high reputation standards.
3.3 Performance
P2a: The more negative a firm’s reputation is, the more likely is to face decrease of its stock prices
P2b: The more negative a firm’s reputation is, the more likely is to face decrease of its sales
3.4 Moderating Factors
Up to this point, it was supported that socially responsible behaviour is positively correlated to the reputation and performance of a firm. However, I support that the effect of socially responsible behaviour on reputation can be moderated by the level multinationality of a firm, and by the legal environment of the countries in which a firm is operating.
3.4.1 Multinationality
The multinationality of a firm defines the level of its international activities. As Zyglidopoulos (2002) states, MNCs have to face greater ethical responsibility in comparison to the solely national-based firms, because a MNC should compromise with the legal and social norms of all the countries in which is operating. Moreover, MNCs need to innovate in order to act according the CSR standards of the home country, which may be irrelevant in the host country (Strike et al., 2006). Therefore, it is more difficult for an MNC to maintain its reputation and it requires more effort than a domestic firm to achieve positive reputation. This fact becomes more intensive as the size of the MNC increases, as it has to control and mange more organisational branches (Strike et al., 2006).
3.4.1 Legal Environment
For the purpose of this study, it is suggested that the legal environment of a country affects the perceptions of the local public about a firm. The dimensions of legal environment that will be explored in this study are the legal origin (common and civil law) and the market economy (liberal and coordinated) in which the firm is operating – two aspects that define the legal framework of a country.
Pistor (2005), in her study based on Hall and Soskice’s framework about the market economies, argues that the legal origin of each country is associated to its market economy. Specifically, LMEs have common law tradition, while CME have civil law tradition. This fact derives from the social preferences in each economy, since they are reflected to the norms and rules which are found in the legal systems (Pistor, 2005). This is consistent with Campbell (2007) who states that institutions are different from one country to another, because of the different norms that form the legal environment. Moreover, Hall and Soskice (2001) argue that the institution in which a firm is operating, affects the attitude of a firm’s management in regard to stakeholders. In general, the relevance of the two types of political economy, namely liberal and coordinated market economy, is related to the fact that the presence of the supporting institutions is important in the process of comparison between nations (Hall and Soskice, 2001).
The legal environment of a country is associated to the economic system (North, 1990, p. 112), and therefore affects the firms based in a specific country (Pistor, 2005). Specifically, the legal origin (common and civil law) of a country can influence the extent to which a firm applies CSR activities and does not proceed to any activity that violates the respect to people, environmental performance and safety policy. The countries under the common law are more likely to ignore some ethical values or not to give as much attention to CSR as the countries under civil law, since the citizens’ rights are not clear. From these statements derive the following proposition:
4. Research Design
4.1 Research Method
As it was explained in previous sections, the effect of ethical or socially responsible activities on firm’s performance, through the effect of reputation is investigated. Specifically, the developed framework is an effort to explore the research question of the study, which is the following:
“To what extent the socially (ir)responsible behaviour applied by a firm can impact its performance?”.
In order to answer the research question of the dissertation, a multiple case study approach was followed. Specifically, firstly two parallel case studies were analysed and secondly a comparative analysis was conducted. The focus of the case studies will be on two firms in the oil industry, BP and Dutch Royal/Shell. Both of firms of the study were involved in more than one incident that is considered socially irresponsible. However, this study will only elaborates on the Brent Spar incident for Shell and the Deepwater
Horizon incident for BP.
4.2 Data
In order to analyse the case studies, secondary data was collected using official reports, and other available information such as academic literature and newspaper articles. In addition, numeric data from the firms’ annual reports and from electronic databases were retrieved.
Reputation, a variable which is difficult to be measured, was evaluated using mainly secondary data and the Fortune Magazine’s ranking of companies. As Fortune (2011) argues, its ranking about the most admired firms “is the definitive report card on corporate reputations”.
Performance was measured by the sales of each firm in a yearly basis regarding the customers’ related performance and the stock prices in a yearly basis regarding the investors’ related performance. This data was collected from the annual reports of the firms and from electronic databases. Specifically, the stock prices were collected from the “Datastream” database, and sales were retrieved from annual reports and the “Orbis” database.
5. Case Studies
5.1 Brent Spar
5.1.1 Background Information – Shell
The Royal Dutch/Shell is an Anglo Dutch group of companies which was formed in 1907 by the merger of two firms, the Netherlands’ Royal Dutch Petroleum Company and the UK’s Shell Transport and Trading Company (Shell Annual Report, 1997). However, the two partners had maintained their “separate identities” by applying a decentralised national system (Shell Annual Report, 1997). An interesting question it would be in which way this factor affected the confrontation of the challenges Shell faces.
Currently, Shell is one of the dominant firms in the oil industry, spread globally with presence in five sectors: Exploration and Production, Oil Products, Chemicals, Gas and Power, Generation, and Renewables (Shell, 2011).
5.1.2 The Brent Spar Incident
In 1970s, Shell was increasingly involved and invested in the exploration and production of oil and gas in the North Sea. By formatting a joint venture with Esso, namely Shell Expro, managed to discover an amount of rich oil reserves, which made the Shell’s investment beneficial. (Zyglidopoulos, 2002)
Best Practicable Environmental Option (BPEO). The second best option was disposal on land, however Shell supported that it was rejected due to safety reasons and high cost (Jordan, 2001). All the other options were rejected in an earlier stage (Zyglidopoulos, 2002) because of their unfeasibility or the damage that could cause to the environment (Löfstedt and Renn, 1997).
In order to start the procedure of deepwater disposal, Shell UK asked the permission of the UK’s government and specifically the Department of Trade and Industry (DTI). In 1995, the Shell’s option was accepted by DTI, and then the government informed the other European countries about Shell’s plan. After 60 days from the announcement, none of the countries had an objection, and therefore the government of the UK began the procedures to issue the licence. (Löfstedt and Renn, 1997) However, at that point, Greenpeace, an international activist group which aimed to raise consumers’ awareness, had occupied Brent Spar to show its objection (Zyglidopoulos, 2002). Three days later, the activists of Greenpeace were removed from the platform, after Shell took legal procedures against them (Löfstedt and Renn, 1997). This event, the removal of the activists from Brent Spar, was critical, since it led to certain consequences of the disposal option. Its importance lies in the great publicity that the media gave to the event, especially in some continental countries like Germany and Denmark. Under the great publicity, the governments of many European countries, even branches of Shell in the Netherlands and Germany, expressed their opposition to the option of deepwater disposal. Consequently, Shell’s reputation in Europe began to fall, especially in Germany where the profits were reduced by 50%, and the public was showing its disappointment by damaging petrol stations and sending complaining letters to Shell (Zyglidopoulos, 2002).
Spar”. The final decision was to reuse parts of the Brent Spar for a ferry terminal in Norway, which was supported by Greenpeace as “the best solution” (Jordan, 2001).
5.2 Brent Spar Analysis
In the case of Brent Spar disposal, Shell acted according the law in the UK, followed all the legal procedures and was advised by scientists who seemed to agree with Shell’s decision. However, Shell’s credibility and reputation was weakened. Since everything was under the law, what went wrong? I argue that this outcome derives both from internal and external factors. An important internal factor is the Shell’s ignorance of its ethical responsibility, and its focus only on the legal responsibility. External factors include the publicity gained by the media due to the multinational nature of the firm, and the legal environment influenced the outcome of the incident. Furthermore, internal issues related to the Shell’s notion of stakeholders, and communication policy, were approached wrong. The rest of the analysis elaborates on these factors, categorised in the factors that determine CSR, the factors that form the reputation, and the factors that moderate reputation.
5.2.1 Shell’s Responsibility
Shell acted in a way which many of its stakeholders considered irresponsible. They violate the norms in some continental countries by deciding to dispose in the sea, something that could harm` the environment, a dimension of CSR. This decision caused reactions from activists and the public which influence the firm’s reputation.
responsible for the disposal. Moreover, Shell avoided to work with specialists and get more advises on the topic of the disposal.
5.2.2 Determinants of Reputation
As it was mentioned in a previous section, reputation can be determined by the level of publicity that a firm attracts, and the communication policy that applies to manage its reputation. This part of the paper examines the effect of these determinants on Shell’s reputation.
5.2.2.1 Publicity – Multinationality
There are various perceptions about the actual reasons that led at the beginning to this crisis, as well as to the final results. Many argue that the reverse of Shell’s initial decision was due to the campaign of Greenpeace (Jordan, 2001). Indeed, the power of the pressure group is noticeable. In this case, Greenpeace used the media in a great degree in order to commerce its activities and to raise awareness to the public (Lubbers, 1998). Specifically, the group provided the media with pictures of the activists on the Brent Spar, including pictures from their dismissal from the platform (Löfstedt and Renn, 1997). The media, as a mean of influence and a “powerful communication technique” managed to attract the public and gain its support (Lubbers, 1998). All the negative publicity that the event caused could be considered an important threat of Shell’s reputation, and therefore the reason why the firm changed its initial position on the disposal of Brent Spar.
social responsibility of the parent organisation, and therefore irresponsible behaviour of a subsidiary affects the reputation of the MNC. As a result, the fact that Shell was operating in more than one national area had an effect on the progress of the story, and mainly through the firm’s reputation. In conclusion, multinational firms need to consider the responsibilities – laws, norms, business policies – they have in all the countries in which they operate.
5.2.2.2 Communication Policy
Furthermore, one critical factor which led to the development of negative reputation is the communication policy which Shell followed before and during the Brent Spar crisis. Specifically, before the incident Shell did not have any interaction with the public, and when managers were forced to debate with the public they faced communication problems (Jordan, 2001, p. 12). Moreover, the top managers faced with arrogance and ignorance the firm’s external stakeholders, especially the customers and the media. They never consider dialogue with Greenpeace or other opposite parties as an option (Löfstedt and Renn, 1997), until the firm’s reputation was ruined. Furthermore, the firm insisted on taking the right decision, even after the negative publicity and the reactions of the public. A right communication policy for Shell UK would be to admit it was wrong and apologise to the public (Ahmed, 2006). In contrast, Shell never apologised, and even after the group announced that the plan for the disposal of Brent Spar was cancelled, stated that the decision for deepwater disposal was the best one.
the different Shell units had a negative impact on public’s perception regarding the credibility of Shell. In the case every unit of the same group states multiple contrasting ideas for the same issue, it developed an untrustworthy image. In contrast, Greenpeace seemed reliable as it had strong, clear arguments, and brave activists who “dared” to occupy Brent Spar (Löfstedt and Renn, 1997).
However, the Brent Spar incident triggered the firm, which launched a code of conduct to face the ethical issues (Shell, 2011), implement a communication strategy based on honesty and openness and monitoring system for what was being written or said about Shell (Lubbers, 1998). In addition, the firm started a campaign in Germany in order to re-obtain a more reputation, through advertisements.
5.2.2.3 Conclusion
5.2.3 Performance
Table 5.1
Royal Dutch Shell PLC (NED)
Stock Prices A Year-End Average 1991 8.05 8.03 1992 8.38 8.35 1993 11.58 9.91 1994 10.72 11.16 1995 12.72 11.06 1996 17.18 14.51 1997 25.25 22.17 1998 21.21 23.36 1999 30.43 26.55 2000 32.63 32.29
* stock Prices in EUR * data from Datastream
Table 5.2
Royal Dutch Shell PLC (UK)
Since the negative effect of deepwater disposal on Shell’s reputation was confirmed in the previous section, its effect on performance will be explored here. Regarding the shareholders’ related performance, Shell has two categories of stocks: class A (stocks A) which are primarily listed in Euronext Amsterdam, and class B (stocks B) which are primarily listed in the London Stock Exchange. Both classes of stocks will be considered for the exploration of Shell’s performance. As it can be noticed from table 5.1 and table 5.2, the effect of the specific incident on the annual stock prices is minimal or neutral for both stock classes. There is only a relatively small decrease of stocks A in 1995 in comparison to 1994. The daily stock prices of the time period the event caused the most reactions (April – July 1995) do not show any significant variation either. In general, the stock prices in the year during and after the incident were increased, even though at the same period Shell had to face another reputation shock in Nigeria. This incremental trend may derive from the increased drilling activities of Shell. In detail, in 1995 Shell expanded its operations and drilling activities in more areas. Since Shell had more activities, it was possible to attract more investors who assume growth of the firm’s profits.
Table 5.3 Royal Dutch Shell PLC
Sales (Oil and Gas)
Sales Proceeds Exploration Refining and Production and Marketing 1993 75,203 2000.00 1762.00 1994 75,769 1538.00 2085.00 1995 84,957 1866.00 1517.00 1996 100,149 3245.00 2036.00 1997 95,213 2914.00 1600.00 * Sales in GBP
The impact of the incident on Shell’s sales is more apparent than in stock prices. However, there are different results for the different categories of sales. In 1995 the sales of the group in oil and gas increased in comparison to the two previous years. Specifically, the earnings from Exploration and Production increased from 1,538 to 1,866 million pounds. In contrast, in the Refining and Marketing segment the earnings decreased from 2,085 to 1,517 million pounds, which means that sales decreased 27.24% (table 5.3). Although the differences in total are not very different, in Germany where the most reactions occurred, the annual sales were significantly decreased (50%).
Moreover, in 1995, the group lost the leadership in the industry with market share 9.82%, regarding exclusively the gas sales. As the same pattern appeared on the sales of refined products, the firm moved to the second place in the industry’s sales. In contrast, exclusively considering the oil sales, a small increase is noticed in comparison to the previous years. (Shell Annual Report, 1997)
As a result, it can be concluded in the case of Shell while there is a neutral effect of social irresponsibility on stock prices, there is a mixed effect on the firm’s sales. However, the effect of sales is negative in Shell Germany. Therefore, the case of Shell provides no clues which support or reject the propositions P2a and P2b, which engage with the relation between reputation and the measures of performance.
Table 5.4
Royal Dutch Shell PLC Sales Oil Sales 1993 8,989 1994 9,341 1995 9,975 1996 10,621 1997 10,681
* thousand barrels daily
5.2.4 Moderation Factor: Legal Environment
The outcome of the Brent Spar incident could also derive from the legal environment of the countries involved. The main countries related to the incident are the UK which is under the common law tradition, and Germany, the Netherlands and Denmark which are under civil law. The decision of disposing the Brent Spar in the sea of UK, was approved by the government of the UK, followed all the legal procedures. However, as it derives from the event, what is accepted in one country it is not accepted everywhere. The government of the UK may have approved and supported the deep sea disposal even after Shell reconsidered its initial decision, but the legal system in other countries determined differently the view of the government in the country. In addition, it seems that the perceptions of the public in countries under the civil and common law can be different regarding an issue. Specifically, while the majority of the people in the UK did not alarmed about the deepwater disposal of Brent Spar, the reaction in countries under the civil law were major. This is consistent with the argument of Ahlering and Deakin (2007) that people tend to show more trust to the legal system in the common law origin countries. Therefore, since the UK government insisted on the fact that deepwater disposal was the right choice, the majority of the public did not indicate major reaction. These arguments are consistent with the proposition P3 which supports that multinationals face higher degree of negative reputation.
5.3 Deepwater Horizon
5.3.1 Background information
which they were temporarily sealing with cement in April using the Deepwater Horizon rig.
5.3.2 The Deepwater Horizon Incident
The Deepwater Horizon was a large floating offshore drilling rig, launched in 2001 and owned by Transocean (Maass, 2011). BP rented the rig from Transocean for its drilling operations in the Gulf of Mexico and had to pay around 500,000 dollars per day to its drilling partner. In April 2010, Transocean was operating the Deepwater Horizon in the Macondo oil field, when an explosion occurred in the drilling machine on 20 April, which killed 11 workers. In details, the workers were cementing the well since the rig was allocated to another operation (Barrett et al., 2011). The cementing of the well was assigned to the company Halliburton by BP. Due to mistakes, oil and gas from the well started rising under high pressure, leading to the explosion of the rig. The drilling platform had been burning for three days, until it was sunk in the sea. The explosion led to the biggest offshore oil spill in the world caused by accident: 4.9 million barrels of oil were released to the sea, an amount which is approximately six months of the consumption in the US (Coy et al., 2010). The efforts of BP to stop the leak were unsuccessful since the blowout preventer (BOP), a machine responsible to seal the well in the case of leakage emergency (Maass, 2011), failed to seal the well. BP tried to activate the BOP with different means including four robotic submersibles. When all the efforts regarding the BOP failed BP tried to plug the well with alternative ways. The spill stopped on 15 July 2010 after the BP managed to seal completely the Macondo well, when a “sealing cap” was successfully placed above the BOP. Later, cement with mud was placed into the BOP in order to seal it permanently. (BP, 2011)
5.3.3 What went wrong?
One of the reasons that caused the incident in the Gulf of Mexico is the technical omissions and safety violations: the pressure test and the maintenance of the rig, including the blowout preventer (BOP). When drilling in the water, the pressures are high and in combination with deep well, can cause emerge of hydrocarbons to the surface (National Commission, 2011). Therefore, when the safety procedures are not executed efficiently, an explosion is possible to occur like happened in the case of Deepwater Horizon. Regarding the maintenance of the rig, it was supported by crew of the rig that it was dangerous to continue working on it, since after nine years of operation was never onshore (Maass, 2011). As it was expected, Transocean was advised and then decided to arrange maintenance of the Deepwater Horizon, just a month before the explosion. A part of the rig that malfunctioned was the BOP. When the BOP was needed, it failed to seal the well. BP’s CEO argued that the failure of the BOP was not unusual since “the last-ditch shear ram is rarely tested under real conditions because of the destruction it causes” (Coy et al., 2010). However, it was later shown that the batteries and the valves of the BOP were faulty, and that fact hindered its smooth operation. In addition, the BOP was previously used in other wells and although its frequent inspections were obligated, BOP had not been sufficiently inspected the last 10 years (Maass, 2011).
A second reason could be omissions of the responsible governmental organisations and the lack of a proper regulatory framework. Regulation about the oil spills in the US was established only in 1990, mainly based on former oil disasters (Griggs, 2011). According to the regulation, the government is responsible for the management of oil spill disasters; to determine the responsible parties and make sure they will undertake all the necessary measures and pay the expenses.
regulations occurred rarely. Regarding the prevention of the disaster, MMS undertook studies in order to react to possible blowouts, but had “never implemented them” (Coy et al., 2010). Moreover, often MMS provided only within minutes the permission to BP to omit major safety processes. As Steffy argues this behaviour may derive from the fact that the members of MMS were connected to, and therefore affected by the industry. Furthermore, it is obligated by the law to have a response plan for the case of oil spill, which is specific for each offshore drilling machine. Although BP had a response plan, it was very general, without a description of how an oil spill could be dealt or the equipment could be used (Griggs, 2011). Regarding the environmental report included in the plan, it referred in species that cannot be found in the Gulf (Griggs, 2011; Maass, 2011). Therefore, it is clear that BP was not properly prepared for reacting in the case of an oil spill disaster. However, MMS, the responsible service, accepted the response plan of BP.
5.3.4 Who is responsible?
5.4 Deepwater Horizon Analysis
5.4.1 BP’s Responsibility
For the purpose of this study, in order to be responsible, a firm needs to consider its legal and social responsibility, which deals with the environment, the people, and their safety. In this case study, BP violated all the three dimensions of social responsibility, as well as some legal rules. The interesting part is that, according BP’s Sustainability Report (2007), the firm’s three primary priorities before and after the incident were (and still are) “safety, people, environmental performance”. However, firm’s actions regarding the explosion and the oil spill showed that BP did not apply its three important issues. Firstly, as it was reported, BP was pushing its partner Transocean to complete its drilling operations faster in order to avoid higher expenses for renting the Deepwater Horizon, without considering the workers’ and environmental safety (Maass, 2011). In contrast firm’s main priority at the period the explosion occurred was to save some money. Regarding the legal issues, BP neglected some necessities such as the respond plan, which was inadequate, and therefore environmental disasters were more likely to uncontrollable (Griggs, 2011).
5.4.2 Determinants of Reputation
5.4.2.1 Publicity
to gain the trust of the public by providing directly information to them, and by showing that the company is transparent (Hichri, 2010). Furthermore, the firm organised press conferences to give information about the disaster and the firm’s respond. However, all the protests and the boycotts, ruined BP’s reputation.
What had contributed at first to this situation could have been the BP’s negative exposure to media. Firstly, many photographs of animals and birds covered in oil, photographs showing the black colour of the sea and the oil reached the shore, and other similar photographs (Hichri, 2010), raised the public’s awareness and caused a wide reaction. Secondly, BP’s CEO, Tony Hayward, who used to be favourite to the media, made many communication mistakes and at some points showed that he faced the disaster with irresponsibility (Hichri, 2010). As it was mentioned to the section of framework, a CEO can determine the publicity of his/her firm, and therefore Hayward’s behaviour contributed to the negative publicity of BP. In general, the event in the Gulf of Mexico and BP gained a major attention of the media, especially the first weeks after the oil spill occurred (Hichri, 2010; O’Dell, 2010). As a result, the great media attention led to the awareness of the people, which showed their opinion through protests and boycotts of BP’s services. As more protests and efforts for boycotting occurred, more negative publicity gained due to the individuals’ or groups’ promotions through the internet (Berr, 2010). Like Slocum, the director of the energy programme of the Public Citizen stated, their collective effort against BP is an evidence for the firm’s “bad corporate citizenship” (Star-Ledger, 2010).
5.4.2.2 Communication Policy
Moreover, as it was mentioned earlier, BP tried to inform direct the public about the disaster. This action shows that BP was transparent, which adds credibility to the firm. However, BP’s inability to contain the well led to the collapsing of its communication policy.
As the time was passing, firm was losing control as it was obvious that the firm lied or was overoptimistic about the disaster (Hichri, 2010). Specifically, Hayward announced that the oil spill is very small and so the environmental impact will not be important, which turned out to be false a month after the explosion (Mouawad and Krauss, 2010). Moreover, BP was accused, that they announced wrong estimation of the oil spill for financial reasons (Mouawad and Krauss, 2010). Firstly, BP had the incentive to hide the real amount due to fines per barrel that will be forced to pay. Secondly, by hiding the real estimation BP was trying to protect its reputation. The effect of this overoptimistic behaviour on reputation is explained by Dawkins and Lewis (2003), according to whom a differentiation between the words and action lead to the loss of firm’s credibility.
With all these exposures, BP followed a different strategy in order to cope with the negative media attention that obtained. BP started blaming Transocean and Halliburton for having a critical contribution to the explosion, though it never refused a partial responsibility (Maass, 2011). Furthermore, BP stopped being transparent, and reduced the information given to the media (Maass, 2011; Mouawad and Krauss, 2010). As reported capturing the environmental disaster such as birds covered in oil, and in general access to the area of the disaster was not allowed to the journalists (Berr, 2010). Since BP lost its transparency, it lost its credibility as well. The failure of this strategy is consistent with the statement of Hichri (2010) that the communication of a firm should be a part of a long-term strategy which aims the preservation of reputation.
showed that the people who died and the environmental damages are not important for BP. Other than donating money to the environmental groups, BP did not acted in order to prove that cared about the disaster. BP’s determination to stop the oil spill was not enough to gain the trust of the public.
To summarise, the factors which contributed to the failure of BP’s communication strategy were the overoptimistic information that BP gave regarding the extent of the oil spill and the possible consequences, the media blackout and finally the lack of compassion the firm showed.
5.4.2.3 Conclusion
Consequently, BP’s the negative publicity and its faulty communication strategy caused reputation damage to the firm (support of proposition P1). An evidence of the ruined reputation is Fortune’s (2011) rankings with the most admired firms. BP is globally the least admired firm in the oil industry while last year was the fifth most admired. Among firms from all the industries BP is not even ranked in the list with the top 350, in contrast to last year. However, in Britain, BP is included in the list with the 25 most admired firm regarding social responsibility. This shows that British are not influenced in a major degree by the oil spill occurred in the US. This is consistent with the proposition P4, according to which people in countries under the common law tradition tend to be more tolerant regarding CSR.
5.4.3 Performance
Table 5.5 BP P.L.C.
Stock Prices Sales
2001 533.40 174,218,000 2002 427.00 178,721,000 2003 453.00 169,441,000 2004 508.00 199,876,000 2005 619.00 249,465,000 2006 567.50 265,906,000 2007 615.00 284,365,000 2008 526.00 361,143,000 2009 600.00 239,272,000 2010 465.55 297,107,000
* Stock Prices in th GBP, Sales in USD * Stock Prices from Datastream, Sales from orbis
Although the sales were not influenced by the disaster, a study of the stock prices shows that a change in comparison to the past years occurred. The changes that occurred concern not only the annual, but also the weekly and daily stock prices. Specifically, after the day of the explosion (20 April 2010), the stock fell 35% within two months (minimum price on 29 June 2010, see Appendix 1). The stock prices reached the lowest level in the last 18 years (see Appendix 1) and remain relatively stable for almost three month after the event. However, by the end of July 2010 the stock prices started increasing again, only some days after BP manage to stop the spill. Even though the prices increased significantly since the disaster, until today, they did not reach the level they possessed before 20 April 2010. The decrease of the prices just after the disaster is expectable since shareholders conceived the investment on BP unprofitable.
Consequently, the disaster in the Gulf of Mexico, as it was explained in the previous section, affected negatively the reputation of BP. Although this effect on reputation weakened firm’s performance measured by stock prices (consistent with proposition
P2a), it did not have an effect on the performance measured by the sales (inconsistent
6. Comparative Analysis
This section undertakes a comparison between the two cases, Brent Spar and Deepwater Horizon, which were analysed earlier and based on this comparison the answer to research question is developed.
6.1 Reputation
The two firms of the study, which belong to the oil industry, have been engaged in offshore drilling activities for decades. In general, oil firms earn plenty of money by drilling the ocean for the extraction of resources. This fact developed negative perceptions about the oil industry and its firms, since offshore drilling is correlated to environmental damage (Jordan, 2001). This is consistent with the argument of Brammer and Pavelin (2004), that industry influences the relation between social responsibility and reputation. Specifically, the oil industry, due to the engagement in activities closely related to environmental issues, is expected to demonstrate a more intensive correlation reputation and environmental performance in comparison to other industries. The following analysis provides support for this argument.
The two crises, which occurred in different decades, attracted major attention by the media. In both cases, the negative publicity influenced the public’s opinion about the firms and finally, ruined their reputation. I support that the effect of publicity was reinforced by the negative perceptions of the public toward the oil industry. However, considering the number of published newspapers’ articles, and the interest of the public, Brent Spar incident’s attraction to the media was larger than the oil spill’s attraction (O’Dell, 2010). Moreover, it was reported that in comparison to other oil firms, and considering the size of the spill and its environmental implications, BP received moderated negative publicity. Although BP obtained criticism and negative publicity in the first three months of the explosion, after the spill was contained the attention of the media has significantly reduced (Maass, 2011; O’Dell, 2010).
scandal under BP’s name. Secondly, I argue that the government had incentive to hide the real magnitude because of the oil drilling activity in the Gulf, which was very profitable for the country (Mass, 2011). An underestimation of the spill could have hindered the permanent inhibition of drilling in the Gulf.
Furthermore, the difference regarding the negative publicity may be a factor of the scope of the incidents. In details, Brent Spar “scandal” was relevant, and expanded in more countries than BP’s oil spill which although caused reactions in other areas, it became a big issue only in the US. Therefore, Shell had to take decisions considering the expectations in different countries, and put more effort to manage its reputation and control all the business branches. In contrast, BP had to consider only the expectations in the US, and comply with the legal system there. As a result, it was more challenging for Shell to maintain positive levels of reputation than for BP. This is consistent with, and can provide some evidence that confirms the proposition which suggests that higher level of multinationality can affect more negatively a firm’s reputation (P3).
Similarly, another reason for the difference regarding the extent of negative publicity could be the different perceptions of responsibility in the different countries. In the US just some months after the oil spill the major reactions, the boycotts and the attention by the media were significantly reduced (O’Dell, 2010), and only affected individuals and environmental groups were bothering with BP. On the other hand, in the continental Europe the degree of reactions were bigger and the duration longer. This may be a result of the different legal environment of these countries. As the forth proposition suggests (P4) the legal origin and the type of market economy in the US and the continental Europe may have affected the people’s perceptions about the importance of the events.
