Impact of CSR on the Financial and Business Performance of Multinational Corporations: A Case Study of BP Plc

Executive summary:

The present study is concerned with the impact of the deep horizon oil spill incident on three key areas of BP Plc. These areas are financial performance, business performance, and Corporate Social Responsibility (CSR).

The principal aim of the current study is to identify potential strategies and areas of improvement for further development of the recovery measures undertaken by BPplc. The research work is divided into 7 major sections which are the introduction, literature review, research methodology, findings and analysis, conclusion, recommendations, and personal development.

The introduction section presents the research aims, objectives, and questions. This section also explains the context and relevance of the current study. Section 2 is concerned with the detailed evaluation of the existing theories and practices in respect of the research topic.Section 3 deals with the various research methodologies selected by the researcher along with logical justification of the same.This is followed by section 4 which includes analysis of the collected data from secondary sources.Section 5 presents the conclusion derived by the researcher based on research findings. This is followed by section 6 which presents the recommendations developed by the researcher based on research findings, analysis, and conclusions. The research work ends with section 7 which discusses the current state of personal development of the researcher along with the scopes for improvement.

The present study has been able to attain research aims through critical evaluation of the existing principles and practices followed by effective analysis of secondary data. The researcher has given due recognition to both quantitative and qualitative data to enhance the quality of research outcomes. The current highlights the flaws in the CSR and corporate governance policy of BP plc and also shows how the overall performance of the company detoriated post-occurrence of the oil spill incident.


Chapter 1: Introduction


1.1 Introduction:

CSR plays a vital role towards the growth of business and betterment of financial performance of business enterprises. CSR has a significant impact on the brand image of a firm and is also important in ensuring statutory compliances. In addition, leniency towards CSR or ineffective CSR can result in abnormal losses that might further lead to unnecessary financial losses. The current research is focused on the evaluation of financial and business position of BP plc before and after the oil spill incident. This chapter presents the aims, objectives, and questions pertaining to the current research work. This is followed by a discussion on the rationale behind the current research work.

1.2 Research background:

BP plc is one of the world’s biggest oil and gas companies that isheadquarted in London, England. The company was originally formed in 1904 but the name BP was incorporated in the year 1954. The company operates in all major functions of oil and gas like oil exploration, refining, production, logistics and distribution, petrochemical products, power, marketing, and trading. At present the company operates in across 80 countries. The daily oil production of the company is estimated at 3.2 billion barrels. The shares of the company are listed at the London Stock Exchange (LSE) and the New York Stock Exchange (NSE). The company is a market leader in its industry in terms of market capitalisation and revenues.

However, an oil spill incident that took place in April, 2010has resulted in huge financial expenses to BP plc. Apart from financial expenses, the Corporate Social Responsibility (CSR) and goodwill of the company were also affected which further affected the financial and business performance of BP plc. The incident has resulted in sharp rise in the liabilities of the company. The incident also gave rise to various legal cases against the company which had increased the legal costs. The revenues of the company also fell consistently post occurrence of the oil spill incident. The oils spill incident had a negative impact on the brand image of the company. Questions were raised on the effectiveness and efficiency of the CSR of BP plc. Profitability is yet another area that got badly affected by the incident.

This has motivated the researcher to conduct a study on the impact of CSR on the financial and business performance of BP plc. The researcher wishes to determine the impact of the oils spill incident on the performance of the company by comparing the financial performance before and after the oil spill incident. In addition, the incident also motivated the researcher to critically assess the impact of the oil spill incident on the CSR of the company and the factors that contribute to the recovery phase of the company post occurring of the incident.

1.3 Research aim:

The aim of the current research is to understand the impact of Corporate Social Responsibility (CSR) on both the financial and business performance of BP pls with special reference to Oil spillage incident that took place earlier.

1.4 Research objectives:

  • Critical evaluation of the financial and Business performance of BP Plc before and after the Oil spillage disaster
  • Critical assessment of the impact of the Oil spillage on the Corporate social responsibility of the company
  • Other factors contributing towards the recovery phase after the oil spillage disaster

1.5 Research questions:

  • How BP has performed After the Oil spillage disaster of 2010?
  • How deep water Horizon effected the Corporate Social Responsibility of BP Plc?
  • What steps the company has taken to recover from the disaster and to what extent they are successful?

1.6 Research rationale:

Corporate Social Responsibility (CSR) refers to the obligations of a business enterprise towards the society and environment in which it operates. Put it differently, corporate social responsibility is the set of policy, procedures, and actions undertaken by an organisation to ensure betterment of the society and environment. In this context, Wright et al. (2010) mentioned that stakeholder satisfaction and environment protection are the two vital objectives of CSR.The major stakeholders of any business organisation are investors, employees, customers, suppliers, and local residents.CSR is mainly based on moral and business ethics. However, companies are often unable to fulfil CSR due to budgetary constraints. Inadequate organisational resource is considered as one of the primary reasons for organisational conflicts. Hence, companies often take the short-cut approach when it comes to CSR activities as CSR activities do not result in direct financial benefits in the form of revenues or profits rather money spent of CSR activities are debited to profit and loss account as a usual expense but no financial benefits accrue as a result of such spending. As mentioned by Raheja and Charu (2008), negligence in CSR activities can result in larger financial losses in the future. This has motivated the researcher to study the financial and business position of British Petroleum (BP) plc before and after the oils spill tragedy. The researcher wishes to investigate the impact of the incident on the financial and business position of BP. In addition, the researcher also aims to understand the recovery phase post occurring of the incident.

Research rationale explains the importance of the current research. In other words, this section explains how the present study contributes to the business organisations and the society at large. Masuliset al. (2010) stated that CSR has a positive impact on the brand image, customer loyalty, and revenues of an organisation. In general, companies engaged in higher CSR activities are expected to provide quality goods and services to the customers. This enhances customers’ dependence on such brands which in turn increases the sales volume of the company. The present research shows how the financial results of BP were affected by the oil spill incident. This would create greater awareness among the business organisations across the globe on the significance of the CSR activities. In this context, Mallin (2011) viewed that CSR enhances competitive advantage and reduces potential threats existing in the business environment. Competitive advantage created by a company needs to be sustainable in nature. CSR activities improve the brand image of business organisations which further results in increased market share of such organisations. Lenient attitude towards CSR responsibilities can result in sudden accidents and losses as in the case of oil spill incidents. This badly affects the profitability of the organisation. Therefore, the present research can be considered as of great importance due to its sole focus on the impact of CSR on the financial and business position of organisations. The current research would also study the existing principles and practices in respect of the vital aspect of CSR like customer care, service quality, service delivery, and improvement of organisational resources.The current study is expected to result in valuable outcomes in respect of these aspects. Therefore, the current study helps to understand the ways in which CSR activities can be improved.

1.7 Dissertation structure:

There are seven major chapters in the present dissertation. These are presented below:

Chapter 1:

This chapter is concerned with the background, aims, and objectives of the current study. The background and the significance of the studyis also discussed in this chapter.Introduction of BP plc and the issues faced by the company are also discussed here.

Chapter 2:

Critical evaluation of the existing literatures is presented in this chapter. The researcher has presented arguments in favour of and against of the existing literatures, theories, and practices in this section. The principle goal of this chapter is to identify the limitations of existing beliefs and practices.


Chapter 3:

This chapter focuses on the vital aspects of the research methodologies adopted by the researcher. The research onion is presented here. The data collection process and data analysis plan is discussed with proper justification on the selection of specific data types by the researcher. This chapter is aimed at enhancing the relevance and accuracy of the research findings and outcomes.

Chapter 4:

The data gathered by the researcher is presented in this section in relevant format and analysis of the data is also conducted in this chapter. This chapter is crucial to the development of conclusion and recommendations.

Chapter 5:

The researcher presents the conclusion developed on the basis of research findings in this section. The findings are linked with the research objectives. A detailed conclusion is presented in this section.

Chapter 6:

Post development of conclusions, recommendations developed by the researcher to increase the effectiveness of the CSR policy of BP plc is presented in this section.

Chapter 7:

A personal development plan (PDP) prepared by the researcher for personality development has been presented in this section. Relevant model has been used by the researcher in this regard.


The journals, articles, and other part of the bibliography used by the researcher is presented in this section. Harvard referencing has been used in this regard.


The detailed calculations are presented under the heading ‘appendix’.



Chapter 2: Literature review:

2.1 Corporate social responsibility (CSR):

The concept of CSR has gained immense significance in recent years. This can be attributed to the research studies conducted on this area. Earlier, CSR was considered merely as a social and environmental obligations or business organisations. However, organisations have started realising the fact that CSR is vital for the long-term sustainability, sustainable competitive advantage, higher profitability, and better brand image of organisations. In this context, Hughes (2006) viewed that CSR is an important part of the corporate governance that needs equal importance like other aspects of corporate governance. In general, CSR can be defined as the set of policies, procedures, and actions implemented by an organisation to discharge its responsibilities to the society in which it operates.

The directors of a company are mainly responsible for the formulation of CSR policies and implementation of CSR activities across the organisation (Butler,  2007). However, Giroudet al. (2012) stated that effective implementation of CSR activities of an organisation can be ensured by active involvement of all the organisational members. Therefore, both directors and employees need to be involved in discharging CSR activities of an organisation. In addition, suppliers can also be involved in the process of discharging CSR. However, sufficient awareness is required among the employees and suppliers of an organisation. Therefore, business enterprises can conduct training sessions aimed at creating awareness on the importance of CSR among employees and suppliers. In this context, Chung and Zhang (2009) mentioned that companies need to engage customers in the CSR activities to reduce the burden of CSR on the companies. Companies can collect valuable feedback from the customers to improve CSR activities. Furthermore, companies need to encourage customers to properly dispose the packages and plastics associated with the finished goods.

2.2 Significance of CSR:

CSR is no longer a concept of only social and environmental obligations by companies. Companies can improve its brand image and market share through proper CSR activities (Freedman and Jaggi, 2011). Companies having positive moral image in the market are believed by the customers to offer quality products at reasonable prices. This increases the market share of the company. Sales revenue of the company is also increased due to this. In this context, Berland and Chiapello (2011)stated that CSR helps in enhancing brand loyalty of customers. Customers prefer to buy goods from such companies and do not shift to other brands frequently. This stabilises the market share of the company. The company can focus on increasing its market share through appropriate marketing strategies. Companies known for ethical business practices are also considered suitable by investors. Foreign investors looking for investment opportunities generally investin companies with strong brand image and ethical practices (Mallin, 2012). Hence, CSR can also help an organisation to raise funds in case of necessity.Furthermore, CSR can prevent unwanted accidents and abnormal losses. Companies adhering to the legal and statutory requirements are less prone to such incidents. As stated by Ahrens (2012), companies need to discharge CSR to gain long-term cooperation from stakeholders. In case of financial crisis, global recession, and poor economic conditions support from the stakeholders are necessary for the sustainability of the organisation (Sutantoputra, 2006). Therefore, CSR can help organisations to gain the support from relevant stakeholders.

2.3 Impact of CSR on financial performance:

Sales revenues:

Customers are the direct source of revenues to a company. Companies can improve respective image through greater CSR activities. This has a positive impact on the brand image of the company which enhances its brand value. Therefore, customers are more inclined towards buying of goods from branded companies compared to non-branded companies. As mentioned by Chapman and Kihn (2007),Expenditure on CSR has an indirect impact on the sales revenues of the company. Companies might get direct financial benefit from the expenses incurred on CSR activities but sales revenues can get enhanced due to better brand image.


Higher sales revenues enable companies to spend more on research and development activities which enables the company to offer innovative products to the customers (Dacin, 2008). This further enhances the sales revenues and lowers per unit cost of production. In this context, Wanger and Schaltegger (2009) expressed that greater sales revenues result in lowering of cost per unit of finished products which increases profit margin of companies. Therefore, companies through its CSR activities can improve its brand image which further enhances the profitability of the enterprise. Thus, companies can earn extra profit through lower cost of production but without raising the selling price.

Economies of large scale:

Greater sales revenues and higher profitability can help companies to operate onalarge scale which enables companies to avail discounts from suppliers on account of bulk purchases (Baird, 2009). Furthermore, cost of production wastages and idle time can be better absorbed by companies operating on large scale. Therefore, the opportunity cost of funds can also be reduced by availing huge discounts from suppliers. In addition, Srivastava (2008) mentioned that economies of large scale reduces per unit fixed costs associated with the production process. Therefore, CSR activities can have an indirect impact on the competitive advantage of companies.

Earnings per share:

EPS is the general expectation of shareholders. EPS refers to the total net profit achieved by a firm divided by the total number of equity shareholders post payment of dividend and taxation expenses. CSR activities of a company improve the brand image of the company which further enhances the sales volume and sales revenues of the firm and thus resulting in greater profitability (Branco and Rodrigues, 2011). In this context, Schwartz (2006) expressed that reduced cost of production and enhances sales revenues as a result of CSR activities leads to increased EPS for the investors. Hence, companies need to recognise the importance of CSR activities in respect of the EPS.

Dividend payout:

Dividend payout refers to the portion of the net profit distributed by a company in a particular financial year to the shareholders as an interest on the investment made by the shareholders. Though, there is no statutory obligation on the part fo a company to pay dividend to the equity shareholders but it becomes an indirect liability of a company to pay dividend to the equity shareholders on a consistent basis. As mentioned by Sachan and Kapoor (2009), dividend payout is essential for the long-term cooperation from investors. Investors might withdraw investments in the absence of dividend payouton a consistent basis. CSR activities have an indirect impact on the profitability of business organisations which further enables it to offer high dividend rate to the shareholders (Carroll and Archie, 2008).

2.4 Impact of CSR on business position:

The impact of CSR on the business position of a firm is discussed below:

Better resource utilisation:

In the view of Schwartz (2006), effective resource utilisation is vital for enhanced effectiveness and efficiency of business organisations. CSR activities ensureproper and ethical allocation of both financial and non-financial resources among various departments or parties. This helps an organisation in the utilisation of organisational resources in a much better way. Optimum resource utilisation is the common objective of any business entity. Therefore, CSR activities ensure that organisational resources are utilised to the fullest extent to derive maximum benefit from those resources.

Sustainable competitive advantage:

Competitive advantage is useful if such advantage is subject to zero or minimum imitation by the competitors. In this context, Srivastava (2008) viewed that moral image and customer loyalty as a result of CSR activities are the two major sources of competitive advantage for a firm. A company can enhance its public image by taking part in CSR activities like tree planting, blood donation camp, and others (Comment and Jarrell, 2012). This strategy enables a company to attract more customers to the firm’s product and services. Once a company is able to create a positive brand image it would be easier for the company to attract and retain more customers. Thus, customer loyalty can be easily achieved by company involved in greater CSR activities.

Strong brand image:

In the view of Ahrens (2012), brand image of a firm has a direct impact on the sales revenues of the firm. CSR activities enhancethe brand value of business enterprises which becomes a life-long asset for the company. Strong brand image enables a firm to raise finance easily due to its positive moral image created through various CSR activities. However, Chapman and Kihn (2007)argued that money spent towards CSR activities often fail to generate greater returns. This reduces the effectiveness of the CSR activities. Therefore, companies need to have an established system to monitor the costs and benefits associated with CSR activities. In addition, CSR activities can also be used by companies in the marketing of respective products and services (Golob and Bartlett, 2009).

Ease in business expansion:

CSR activities help companies in business expansion by easy product diversification. Product diversification is often necessary for business enterprise to get rid of the negative impacts of market saturation. In this context, Wanger and Schaltegger (2009) mentioned that CSR activities enhances the goodwill of business enterprises which further increases the acceptability of new products introduced by such companies.People often hesitate to buy new products due to lack of confidence in the messages conveyed through advertising. However, a company known for ethical practices and CSR activities is at a better position to attract new customers more easily compared to a firm have low degree of involvement in the CSR activities.

2.5 Factors affecting CSR of an organisation:

CSR activity is often affected by various factors which have a direct or indirect impact on the CSR activities of a company. These factors are discussed hereunder:

Organisational resources:

Availability of organisation resources is a major determinantof degree to which a company can indulge in CSR activities (Grayet al.2007). Inadequate organisational resources often appearto be a major barrier to the implementation of CSR activities. As mentioned by Chapman and Kihn (2007), budgetary constraints have often been identified to be a major obstacle in the way of CSR activities. Companies are often unable to ensure adequate investment towards CSR activities due to budgetary limitations. Greater the availability of organisational resources higher is the CSR activities and vice-versa. In contrast, Ahrens (2012) argued that attitude of top management is mainly responsible for the CSR activities implemented by a firm. Companies often fail to recognise the importance of CSR due to absence of direct financial benefit. Companies often allocate lower resources towards CSR in spite of having sufficient resources.

Financial strength:

The financial strength of a company is major determinant of the ability of an enterprise to deliver CSR (Srivastava, 2008). The assets at the disposal of a company decidethe capability of a firm to conduct CSR activities.Companies with lower financial leverage are at better position to take part in CSR activities. Cash and bank balances and other financial assets held by a company determine the capability of a firm to take part in CSR activities (Hughes, 2012).Companies having higher debt burden are often incapable of indulging in CSR activities.

Resource allocation procedure:

Resource allocation procedure of an organisation also affects the CSR activities. Organisations giving due recognition to the CSR activities would allocate more resources towards CSR activities. A company needs to understand the direct and indirect impact of the CSR on its brand image and long-term sustainability. Companies that are more concerned with short-term profitability and revenues would be reluctant towards investment in CSR activities. As stated by Schwartz (2006), CSR activities as a result of proper resource allocation procedure helps an organisation in effective resource utilisation. Therefore, a company can conduct an in-depth analysis of the various resources at the disposal of the firm. The importance of each organisational resource is also needed to be identified. In addition, identification of Critical Success Factors (CSF) is also necessary to set priority in respect of allocation of organisational resources towards CSR activities.

Market competition:

In the view of Wanger and Schaltegger (2009), there exist an inverse relationship between the market competition and CSR activities of an organisation. Higher market competition indicates presence of large number of manufacturers in the market which makes it necessary for an organisation to spend heavily in marketing activities (Agrawal and Chadha, 2008). Thus, greater marketing expenses limit the financial capacity of a firm to indulge in CSR activities. In contrast, an industry with less number of competitors results in lower marketing and sales-promotional expenses which enables a firm to spend higher amount towards CSR activities. This also results in long-term benefit to the firm in the form of sustainable competitive advantage, consistent growth, and long-term profitability.

2.6 CSR activities of BP plc:

BP plchas undertaken various initiatives to discharge its CSR. The company has shown due consideration to the stakeholders, society, and the environment. Some of the key initiatives implemented by BP plc are mentioned below:

Stakeholder engagement programme:

The management of BP plc has recognised the importance of stakeholder engagement and thus have taken several measures to engage its stakeholders in the business functioning of BP plc. In this context, Anget al. (2007)viewed that periodic meetings, proper disclosure of financial and non-financial information, and effective future planning improves relationship of a firm with its stakeholders.BR plc conducts quarterly meetings with investors to discuss on past achievements and future planning. The company ensures true and fair disclosure of financial statements to the investors. BP plc also conducts monthly feedback sessions with all employees in which employees are asked to rate the performance of the company on various dimensions (Bebchuket al. 2010). This helps the company to understand the issues faced by its employees. The company encourages its customers to share valuable feedback on its products and services through its official website and other social networking sites like Facebook and twitter.

Transparent codes of conduct:

BP plc has well established codes of conduct. The principle objective behind setting codes of conduct is to eliminate or reduce biasness across the organisation. The hard copies of the codes of conduct are displayed across the organisation. The company has ensured that all its employees are well aware of the codes of conduct and that the employees comply with these codes. As mentioned by Bhagat and Bolton (2012), codes of conduct are effective in minimising organisational conflicts. The company has two separate codes of conducts for its employees and suppliers. Suppliers are required to refrain from unethical business practices and adhere to ethical norms of BP plc.

2.7 Impact of the oil spill incident on Financial and business performance of BP plc:

The impact of the oil spill incident on the performance of the BP plc is very much significant. As a consequence of the oil spill incident in April 2010, BP has incurred huge amount of the additional costs and the liabilities of the company has gone up. As mentioned by Ahrens (2012), in order to cope up with the unforeseen problems, an organisation needs to keep the contingent liabilities. The contingent liabilities of the company have gone up at a rapid rate. The cumulative pre-tax income of the company after the incident has been figured as $42.7 billion. According to the view of Berland and Chiapello (2011), the cumulative income statement does not include the amounts for obligations that BP considers are not possible. The total amounts need to be paid by the BP plc after the incident was completely uncertain. The impacts of the oil spill incident on the balance sheet and cash flow statement is very much significant.

After the oil spill incident BP has established the Deepwater Horizon oil spill trust in the year 2010. $ 20 billion needs to be funded into the trust account to safely legitimate the business claims. Moreover, in this context, Chapman and Kihn (2007) mentioned that the trust fund has helped BP to resolved with the state and local Government claims. The funding of the trust was completed in the fourth quarter of 2012. The obligation to fund $20 billion to the trust was considered in terms of the time value of the money. Due to the trust fund set up after the oil spill incident has increased the provision of $1,542 million. Moreover, the administration cost has also increased significantly after the oil spill incident.

After the oil spill incident BP has made an agreement with US government in 2012 that was approved by the court. As per the agreement BP needs to pay $4 billion over a period of five years. The remaining payable of the company was 43,525 million after the oil spill incident. In order to resolve the oil spill issues BP has also made a settlement with the US Securities and Exchange Commission. The accrued interest reached an amount $175 million. BP has recorded the provisions for environmental expenditure, spill response costs, claims, and clean water act penalties after the oil spill incident. In this context, Chung and Zhang (2009) stated that the environmental provision includes $320 million after the oil spill incident. The company has also faced huge amount of penalties for damaging the natural resources. During the year 2011, BP has entered framework agreements with the natural resource trustees for the USA and five Gulf-coasts states providing for up to $1 billion to be spent to be early from the oil spill (Bushman and Smith, 2007). The total funding for this purpose was set up at $ 20 billion. In order to restore the framework the cost has increased additionally.

The litigation and claims of the company has increased. As mentioned by Giroudetal. (2012), litigation and claims provision includes amounts that can be estimated reliably for the future cost of setting claims by the individuals and business. BP has provided provisions with the PSC settlements agreements with the exception of economic loss.

In terms of the revenue generation, it has been seen that the revenue of BP has shown a constant downfall after the oil spill incident. As mentioned by Hughes (2006), any incidents causing the brand image of the organisation can affect the revenue of the organisation. The growth of revenue has decreased 0.47% after the oil spill incidents. Moreover, in this context Mallin (2011) identified that the oil spill incident has given the scope to the other rivals of the company to capture the market share of BP plc. The loss of brand image of BP plc has provided the slight competitive edge. However, the oil spill incident has increased the prices of oil. The fall of sales has caused the major problem for BP plc and affected the revenues.

The gross profit margin of BP plc has reduced 1.20% during the period of oil spill incident. The huge amount of penalties and the additional costs for the recovery issues has impacted on the gross profit margin of the organisation. Similarly, the operating profit margin has also reduced by 1.56% in 2010. In this context, Masuliset al. (2010) mentioned that as at the same period the other companies like Shell has achieved higher profit. It indicates that the profitability of BP plc has decreased due to the loss of brand loyalty. Moreover, the high amount of administrative cost due to the oil spill crisis has also increased the operating cost and thus the profitability has reduced. Return of capital employed has reduced 3.8% after the oil spill crisis. As mentioned by Raheja and Charu (2008), due to the financial crisis the companies face the liquidity crunch. The liquidity ratio of BP plc has reduced drastically. The current assets of the company have reduced and the liability has increased drastically. It has indicated that the company needs to keep huge amount of provisions for the claims of the Government.

The EPS has reduced drastically due to the oil spill incident. According to the view of Sachan and Kapoor (2009), the critical issues faced by the organisation impact on the investments of the organisation. The EPS of BP plc has reduced by 19.81% in the year 2010 (Claessens, 2008). However, the initiatives taken by the company in order to recovery plan has helped to increase the motivation of the investors. Therefore, EPS has gone up in the upcoming years.

The fluctuations in the financial performance indicated the impact of the oil spill incident. Moreover, the loss incurred by the organisation due to the oil spill crisis has also affected the profitability of BP plc. The statistics has revealed that the impact of the oil spill incident accounts 31% impact compare to that of the other marine accidents. As mentioned by Schwartz (2006), the oil spill incident can be one of the major reasons of resulting such financial volatility immediately after the disaster has happened.          

2.8 Impact of the oil spill incident on the CSR of BP plc:

The oil spill incident has impacted the reputation of BP plc on a greater aspect. In this context, Srivastava (2008) mentioned that the oil spill incidents have merged the CSR activities with the environmental affects. BP is considered to be one of the major companies in terms of the supply of the petroleum. The accident has created a negative impact on the minds of the shareholders and the other investors. As a consequence of that, the share prices have reduced drastically. The oil spill incident has destroyed the balance of the eco-systems (Cremerset al. 2011). Therefore, the incident has raised the protests from the many parts of the world. Most significantly, the reputation of BP was harmed by the activists in social networks and Greenpeace.

The issues related to the CSR do not always depend on the size of the company. However, in this context, Wanger and Schaltegger (2009) argued that the expectation of the Governments and the customers in terms of maintaining the CSR activities increases with the volume and brand image of the company. The environmental impact of the oil spill incident has not only questioned on the extraction of oil and energy in terms of the operation of BP plc. More significantly, Dubois (2006) stated that the change of the climate and actual usage of the oil has created the negative impact on the stake holders. The extensive use of the hydrocarbons of BP has also raised questions.

The diversified range of operation of BP plc has compelled the organisation to obey the human rights (Faleye and Olubunmi, 2011). However, the incident has raised questions on the protection of the human rights. The ethical practices of the company have faced several questions after the incident. According to the view of Akyolet al. (2009), the oil spill incident has significantly impacted the local communities in terms of the employments and operation. The huge financial loss has compelled the company to sack many employees. However, being a global player, BP has no democratic legitimacy. The organisation is often was initiated a lead part on the social development. The oil spill incident has hampered the performance of the company as a social developer (Baird, 2010).

BP has established the impression as the company producing the sustainable energy resources. The extensive usage of the fossil fuels has created bad impression on the investors of Bp plc (Hoshiet al. 2009). However, the oil spill incident has hampered the reputation badly. The failure of the company to keep the commitment up to the level was a big issue. Moreover, many campaigns have started against the company stating BP as the top ten worst companies. BP has been hit with a quite number of fines for the political issues.

However, BP has admitted that the oil spill incident is one of the major setbacks for the company in the recent years. Therefore, the actions taken by the company has helped to gain some brand reputation. The collaboration of the company with the US Government in terms of the rescue operation has created a positive impact on the investors.          

2.9 Measures taken by BP plc for recovery from the negative impact of the oil spill incident:

The consequences of the oil spill incident have urged BP plc to take the necessary steps based on the time response. The first type of action taken by BP plc was to arrange the systematic procedure of the concern. As mentioned by Blöndal (2011), workers of BP and Transocean owning the deepwater horizon rig have used the floating booms. It has helped to contain surface oil and chemical dispersants to break down under the water. This action was taken immediately after the oil spill incident in order to control the oil to spread into the beaches and maintaining the balances of the ecosystem. Secondly, the safety advices and proposals were provided in order to prevent the workers and the residents who came across with the direct contact with the oil and dispersants. Thirdly, BP plc has taken the action to save the flora and fauna of the regions that were badly affected due to the oil spill incidents. The company has cooperated with Smithsonian’s National Zoological Park for the rescue job. Moreover, Chen et al. (2012) identified that BP has sent 3 huge contaminant domes in order to collect most of the leaked oil.

The company has also taken initiatives to figure the long-term effect of the oil spill.  In this context, Chiadamrong (2012) mentioned that BP plc has taken the actions to navigate and determine the oil plums at the high depth with the high tech robots. Moreover, Comment and Jarrell (2010) pointed out that the oil spill incident has initiated lots of researches, meetings, presentations in the BP plc on the marine organism’s physiology and biology. In order to measure the levels of pollution and behaviour of the whole eco system the company has organised several meetings with the experts. The meetings have helped the organisation to continue the remedy actions with better effect.

BP plc has collaborated with the USA Government for the rescue action taken after the oil spill incident has taken place. The amendments have helped to modify the investigation pattern of the oil rigs. The moratorium on the deepwater offshore drilling on the outer commercial shelf for the six months was accepted. The US Government has issued a NOTAM no-fly zone over the Gulf of Mexico and all the other affected regions (Klein et al.2010). The restriction over the sell of sea foods was imposed by the Governments. The proper investigation and testing on the entire fishery related product has been done by the Government. BP plc has paid $69 million for the cleanup activities.

BP plc has also collaborated with the other nations for the recovery process. For example, Netherlands donated he usage of ships handling very large scale. It has occurred within the three days of the collapse. Moreover, after the incidents created a plan for protecting the Louisiana marshlands using sand bricks and special 60 mile long dikes. Within the 55 days of the incidents UN has taken this imitative with the help of BP plc. Moreover, Comment and Jarrell (2010) stated that assistance was provided by the skimming boats, fire contaminant booms and the other equipments.

2.10 Factors affecting the recovery measures of BP plc:

The measures undertaken by BP plc towards recovery from the impact of the oil spill incident are discussed below:

Financial resources:

The entire activities related to the cleaning, restoration, and other recovery activities involve huge financial costs. However, BP plc has only limited financial resources to fund these activities. Hence, the recovery measures adapted by BP plc are affected by the financial constraints because the liquidity position of the company has already been affected by the financial expenses in respect of the oil spill incident. As mentioned by Larry and Fuerst (2011), dividend declaration is a major burden that has affected the recovery initiatives of BP plc towards the deep horizon oil spill incident.


Human resources:

BP plc had to employ a huge number of its existing workforce towards the restoration and cleaning activities. These workers are employed under the direct payroll of the company which involves expenses in the form of salary. Cost of human resources employed in the restoration activity of the oil spill incident was one of the major expenses of BP plc (Lim and Terence, 2010).



Chapter 3: Research methodologies:

This chapter is concerned with different research methodologies used by the researcher in context of the current study. Research methodologies mainly include research philosophy, research approach, research design, data type, data collection method, and sampling process. The ethical issues, research limitations, and time-period of the present research study is also discussed at the end of this chapter. As mentioned by Aldag and Steams (2006), sound justification for selection of research methodologies enhances quality of research outcomes.

3.1 Overview of research methodologies:

The overview of the chosen research methodologies are presented below:

  • Research philosophy: Positivism
  • Research approach: Deductive
  • Research design: Exploratory
  • Data type: Secondary
  • Investigative type: Quantitative and qualitative, both
  • Sampling method: Purposive sampling method


3.2 Research philosophy:

Research philosophy can be considered as one of the most important aspects of research methodologies as it provides a guideline for the selection of other research methodologies. Research philosophy can be broadly classified into the following categories:

  • Epistemology
  • Ontology
  • Axiology

The theoretical knowledge associated with a research work forms the central part of Epistemology. Ontology supports research works associated with crucial aspects of human beings.Axiology is focus on the development of values to benefit the society at large. However, Epistemology can be further classified into th following categories:

  • Interpretive
  • Positivism
  • Realism

Research works related to human beings can use interpretive philosophy whereas Positivism philosophy can be best used for research works that are scientific in nature. In contrast, realism philosophy is focused on checking the authenticity of a concerned study.

The researcher has chosen positivism philosophy for the current study as it would allow the researcher to focus on the financial and business position of BP plc before and after the oil spill incident. As mentioned by Amitabh and Gupta (2012), positivism philosophy enables researchers to develop a linkage between practical situations and research issues.


3.3 Research approach:

Research approach chosen for a specific study determines the structure and flow of the entire research work. The major types of research approaches are mentioned below:

  • Inductive
  • Deductive

Inductive approach is followed for studies that are aimed at the creation of new theories based on research outcomes whereas deductive approach is used in researches that are aimed at examining the validity of current beliefs, practices, and principles against the research issues.

The researcher has selected deductive research approach for the current study as the basic purpose of the current research work is to examine or understand the impact of the oil spill incident on the financial performance, business performance, and CSR of BP plc. In this context, Bernard (2009) stated that deductive approach enables a researcher in the development and testing of research hypothesis based on prevailing literatures. The researcher aims to evaluate the impact of the oil spill incident on BP plc and measures undertaken by the company to overcome the negative effects of the incident. Thus, deductive approach seems to be suitable for the current study as it would allow the researcher to develop effective recommendation based on research findings.

3.4 Research design:

Research design lays a detailed outline of the process in which the researcher would conduct the investigation. The major types of research design are presented below:

  • Exploratory
  • Explanatory
  • Descriptive

Exploratory design is focused on exploring new dimensions in respect of existing literatures and practices. Explanatory design is concerned with studying the relationship between cause and effect in respect of a particular topic. Descriptive design is followed to describe areal life situation in detail.

In the view of Brannen (2007), exploratory design helps to identify and understand the actual impact of an independent variable on a dependent variable. In present scenario, the researcher has chosenexploratory research design to understand the actual effects of the oil spill incident on the CSR, financial performance, and business performance of BP plc. Exploratory design would further allow the researcher to determine potential strategies to address the issues identified as a part of the research work.

3.5 Analysis type:

Two major types of analysis used for research works are mentioned below:

  • Quantitative
  • Qualitative

Quantitative analysis involves collection and analysis of numerical data by the use of various mathematical and statistical tools. In contrast, qualitative analysis involves analysis of ideas, opinions, feedbacks, and other subjective form of data. Focus group, interview, and questionnaires are the key methods used for qualitative analysis whereas interviews, surveys, and documents review are the key methods of quantitative analysis. In this context, Saunders et al. (2008) expressed that quantitative data is used to test existing theories whereas qualitative data is used to develop new theories. Qualitative analysis is subjective in nature whereas quantitative analysis is objective in nature. As mentioned by Lim and Terence, (2010), qualitative analysis is semi-structured or unstructured in nature but quantitative analysis is structured with fixed response options.

In the view of Dubois (2007),qualitative research provides valuable insights on the concerned issue to develop research hypothesis. Quantitative analysis is highly quantitative in nature and measurability makes quantitative analysis more suitable over qualitative analysis for studies that are aimed at testing existing ideas.

The researcher has included both quantitative and qualitative data to develop accurate outcomes and more effective recommendations.

3.6 Data type:

Data can be defined as the raw facts, figures, and numbers that are used as inputs to a concerned research work. In contrast, information are the output generated by a research work. Put it differently, information are the processed form of raw data. The two major types of data are presented below:

  • Primary data
  • Secondary data

Primary data refers to the original research made on the basis of analysis of the collected data from direct respondents. In contrast, secondary data refers to the data on which primary research was conducted earlier. Originality is the key benefit of primary data but lack of originality is a key concern with secondary data. As mentioned by Sale et al. (2006), secondary data collection and analysis requires greater precautions compared to primary data collection and analysis.This is required to eliminate any error in the collected data. In contrast, Podsakoff and Dalton (2011) argued that chances of personal prejudices is higher in primary data analysis compared to secondary data analysis. Primary data can be considered as a raw data but secondary data can be regarded as a processed data or information. Collection of primary data is time-consuming and costlier than secondary data collection. However, secondary data might not be suitable for the objects of enquiry but systematic collection of primary data makes it more suitable to suit the purpose of the research.

3.7 Data collection method:

The quality and authenticity of data depends on the data collection process (Karol, 2009). Collection of primary involves greater time and cost compared to secondary data. However, the researcher has based the current study on secondary data only. Secondary data seems to be sufficient to study the financial and business performance of BP plc before and after the oil spill incident. Secondary data is also helpful to understand the measures undertaken by BP plc post oil spill incident.In addition, secondary data would help the researcher to understand the degree to which BP plc has been successful in recovering from the negative impacts of the oil spill incident.

  • Annual reports of BP plc
  • Journals
  • Books
  • Articles
  • Internet
  • Blogs
  • Documentary on deep water horizon

Annual reports of BP plc:

The oil spill incident took place in the year 2010. Therefore, the annual reports of BP plc for the years 2009, 2010, and 2011 would help to understand the change in the financial and business position of BP plc before and after the oil spill incident. In addition, annual reports are an important source of secondary data that provides vital information on the corporate governance policies, corporate social responsibilities, and other strategies adapted by BP plc.


Journals are one of the most useful sources of secondary data. The researcher has given due recognition to the journals to gather valuable qualitative data to evaluate the impact of the oil spill incident. As mentioned by Cameron (2011), the prime benefit of journals is that journals are a result of researches conducted by other scholars and researchers. Hence, authenticity of the data is the key benefit of using journals in the research work.


The researcher has also used relevant books for the current study. Books provide valuable inputs on the existing principles and practices followed by business organisations and BP plc. Hence, books would help to identify the gaps in the existing literature.

Articles or blogs:

Articles or blogs are prepared by scholars and researchers that throws light on vital issues related to a particular subject. There are a number of blogs and articles available on the oil spill incident that occurred in 2010. These articles or blogs provide vital analysis of secondary and also helps to understand the current situation.


Internet is one the best sources for the collection of secondary data. A researcher can collect secondary data from the internet through various blogs, websites, and online journals and articles. Internet helps researchers to access wide range of data in lower time.

Documentary on deep water horizon:

Documentary prepared on the oil spill incident or deep water horizon is helpful in understanding the reasons for the incident and factors affecting the recovery initiatives of BP plc. These are helpful in drawing proper conclusion for the development of suitable recommendations.

3.8 Sampling:

Sample can be defined as a smallportion of a population that represents the total population. Sample is used to obtain inputs on research issues. Number of customers, suppliers, managers, local people and employees are some of the examples of sample.As mentioned by Cameron (2011), sampling helps to understand the impact of a particular incident, policy, or action on an entire population. There are different methods of sampling. However, the researcher has chosen purposive sampling method for secondary data analysis in the current study.

Purposive sampling is also termed as subjective or judgemental sampling method. As mentioned by Podsakoff and Dalton (2011), purposive sampling method depends on the personal judgement of the researcher. Purposive sampling technique would enable the researcher to concentrate on relevant characteristics of the collected data to understand the overall impact of the oil spill incident. In this context, Cameron (2011) mentioned that purposive sampling method is suitable for research works based on qualitative or mixed research methods.

3.9 Research limitations:

The researcher has considered only secondary data for the current study and this can be considered as the major limitation or weakness of the present research. Secondary data helps in understanding the causes and effects of incidents occurred in the past. However, the quality of the research outcome could have been better by including both primary and secondary data in the research work. As stated by Saunders et al. (2008), combined use of primary and secondary data helps to understand both current and past trends. Therefore, use of primary data could have helped the researcher to understand the impact of the oil spill incident on the CSR of BP plc by collecting feedback from the local residents. In addition, inclusion of primary data in the study could have enhanced the suitability of the data analysis to meet the purpose of the study.

3.10 Ethical issues:

The researcher has developed a code of ethics comprising of 5 major principles as mentioned below:

  • Objectivity
  • Integrity
  • Professional competence and due care
  • Confidentiality
  • Professional behaviour

The researcher ensures that objectivity of the current study is ensured and that personal biasness is excluded from the development of conclusion and recommendations. The researcher further ensures that personal skills, knowledge, and competence is applied to enhance the research outcome. In addition, the researcher would also ensure that the collected data is used only for the research work.


Chapter 4: Findings and analysis

Appropriate analysis of the collected data is inevitable for the success of a research. The analysis of the secondary data collected by the researcher is presented in this section. The researcher has collected secondary data from annual reports of BP plc, internet, journals, articles, and other relevant sources. The gathered data has been analysed to understand the actual impact of the oil spill incident on th financial, business, and CSR performance of BP plc. Secondary data regarding the oil spill is useful in understanding both the impacts of the oil spill incident and initiatives taken by BP plc to recover from the incident.

Quantitative analysis:

4.1 Financial performance and financial position of BP plc before oil spill incident:

BP plc
Financial statement analysis
Items $ million $ million
Sales revenues     239,272.00     361,143.00
Income from other sources         6,866.00         5,910.00
Total gross revenues     246,138.00     367,053.00
Purchases     163,772.00     266,982.00
Indirect expenses 55,940.00       64,832.00
Earnings before interest and taxes (EBIT)      26,426.00      35,239.00
Financial costs         1,110.00         1,547.00
Net financial income            192.00          (591.00)
Earnings before Taxation (EBT)      25,124.00      34,283.00
Taxation         8,365.00       12,617.00
Profit after Tax (PAT)      16,759.00      21,666.00
EPS (cents)             87.54           111.56
Current assets       67,653.00       66,834.00
Non-current assets     168,315.00     161,854.00
Total assets     235,968.00     228,688.00
Current liabilities       59,320.00       69,793.00
Long-term liabilities       74,535.00       66,336.00
Total liabilities     133,855.00     136,129.00
Net assets     102,113.00       92,559.00

(Source: Comment, R. and Jarrell, G. ,2010, p-68)



4.2 Impact on stock market reaction:

Drastic fall in the stock price is one of the greatest impacts of the oil spill incident. The stock price of BP plc reduced from $60 on 10thApril, 2010 to $27 on 25th June, 2010.The total market value of the company was also badly affected by the incident. The market value of BP plc was $186 billion on 20th April, 2010 but the same decreased by $101 billion on 25th June, 2010.

Stock prices of BP plc
Date Open High Low Close Volume Adj Close ($)
12/1/2010 40.55 44.83 40.15 44.17 7765400 36.74
11/1/2010 40.99 44.37 39.76 40.00 9689800 33.27
10/1/2010 41.94 42.08 39.58 40.8 9055900 33.93
9/1/2010 35.89 41.3 35.67 41.17 10706000 34.24
8/2/2010 39.00 41.59 34.16 34.83 15781300 28.97
7/1/2010 29.86 39.81 28.79 38.47 44278100 32.00
6/1/2010 37.34 39.41 26.75 28.88 111196900 24.02
5/3/2010 49.36 52.00 40.61 42.95 40607900 35.72
4/1/2010 57.45 60.98 51.36 52.15 15736500 42.66
3/1/2010 53.36 58.49 53.26 57.07 5933200 46.69
2/1/2010 56.47 57.26 52 53.21 8216900 43.53
1/4/2010 59.3 62.38 55.87 56.12 5806500 45.22


(Source: Aldag, R. J. and Steams, T. M. ,2006, p-255)



 The above table shows that the stock prices of BP plc was badly affected by the oil spill incident as there was a consistent fall in the share price of BP plc. The share price of thecompany fell from $45.22 on 1st April 2010 to $36.74 on 1st December 2010. Reduction in share price indicates fall in shareholder expectation and vice-versa. Hence, sharp fall in the share price of BP plc indicates fall in the expectation of shareholders.

Regulatory costs and probability of similar incidents were the key concerns among shareholders of BP plc.The major factors or areas of concerns for the shareholders are presented below:

  • Regulatory costs
  • Probability of similar oil spill incidents
  • Actions of regulators for off-setting rise in regulatory costs
  • Supply and demand

The deep horizon oil spill incident raised the bar for regulatory requirements for Bp plc which in turn raised the costs associated with regulatory measures. Reduction in share price of BP plc can be attributed to the anticipated rise in regulatory costs. Investors were concerned about the rise in regulatory expenses as the same would result in decrease of net profit of the company. The financial strength of the company might also get affected by the additional costs borne by BP plc. In addition, the investors got more concerned about the environmental and social disclosures by the company. Investors were also not convinced about the safety precautions taken by BP plc and this has raised the chances of such incident in future. This had made many investors to withdraw investment from the company.  However, as mentioned by Chen et al. (2012) in the section 2.9 that the impact of the oil spill incident on the supply and demand of oils would be negligible. However, customers started avoiding gas stations of BP post occurrence of the oil spill incident. A portion of the customers started purchasing gasoline from non-BP stations.

4.3 Impact on economic condition of BP plc. :

Cost item Amount ($)
Cleaning expenses 14000 million
Determination of the degree of impact 600 million
Initiatives for reduction of impact 2000 million
Promotion of tourism industry 180 million
Sea-food testing 32.5 million
Contribution to trust funds 20000 million

 (Source: Karol, B, 2009, p- 55)


Businessmen of Gulf and BP plc are the most economically affected parties as a result of the deep horizon oil spill incident. The incident has adversely affected the tourism and sea-food industries.The Gulf oil spill incident has resulted in the decrease of businesses in Gulf. However, BP has started taking initiatives for the revival of these industries. The company has announced to offer both financial and non-financial assistance for the same. Thecleaning, restoration, and compensation are the key areas in which BP plc had to spend billions of dollars. These unforeseen expenses had badly affected the cash flow stream and liquidity position of BP plc.

BP plc had to employ around 9000 vessels to clean up the area where the oil spill took place. 50,000 workers were employed by BP plc for the cleaning process. BP plc had to spend $14 billion for the cleaning process. In addition, the company had to incur another $600 million to determine the degree of the impact of the incident on the environment and nature. This is followed by an expenditure of $2 billion to minimise the impact of the oil spill incident. All these payments were made through cheques or cash. These affected the working capital of the company. Safety cash level of the company was also affected.Theexpenses incurred by BP plc in relation of the oil spill incident would affect the long-term financial strength and stability of the organisation as these expenses involves huge opportunity costs.

4.4 Other financial effects:

The impact of oil spill incident on the financial and business performance of BP plc cannot be ignored. The company had to bear a pre-tax charge of $40.9 billion due to the oil spill incident. All expenses incurred by BP plc in respect of the oil spill incident were treated as non-operating items which allowed the company to deduct those items from the taxable income. The company has also decided to establish an escrow account in next 3.5 years to meet the legitimate claims placed by the Gulf Coast Claims Facility (GCCF) and other legitimate expenses. The total cost of such escrow account was estimated at $20 billion. However, this budgetary allocation also includes expenses incurred in respect of damages of natural resources and settlements of legal suits. In addition, BP plc has initiated a research programme for studying the impact of the oil spill incident and responses associated with the incident. This research programme involves a total cost of $500 million and the duration of the research programme is 10 years. The research programme undertaken by BP plc in respect of the oil spill incident would help to reduce the negative impact of the incident on the brand image of the company.In addition, BP plc has also agreed to invest $360 million towards the 6 beams in the Louisiana barrier island project. These expenses have a negative impact on the financial strength and financial performance of BP plc. However, the costs mentioned above do not include a major portion of the penalties and fines imposed on BP plc. As mentioned by Larry and Fuerst (2011) in the section 2.10 the additional costs in the form of fines and penalties could amount to $4,300 per barrel of oil spill. However,accurate estimation of the amount of fines and penalties arising out of the oil spill incident is difficult.


4.5 Replacement cost analysis of BP plc:

BP plc
Replacement cost analysis  – Oil spill incident in Gulf of Mexico
Items 2009 2010 2010 2010 2009
Q2 Q1 Q2 Q1 and Q2
Exploration and production expenses     5,046.00     8,292.00      6,244.00    14,536.00     9,366.00
Refining and marketing costs        680.00        729.00      2,075.00      2,804.00     1,770.00
Other businesses and corporate      (583.00)      (328.00)         (70.00)       (398.00)    (1,344.00)
Oil spill response – Gulf of Mexico                –                 –    (32,192.00)  (32,192.00)                –  
Consolidated adjustment          76.00        208.00           98.00         306.00       (329.00)
Profit or loss before interest and taxes – Replacement costs     5,219.00     8,901.00  (23,845.00)  (14,944.00)     9,463.00
Financial costs and net financial income associated with post-retirement benefits or pensions      (321.00)      (228.00)       (214.00)       (442.00)       (689.00)
Taxation on a replacement cost basis   (1,714.00)   (2,966.00)      7,188.00      4,222.00    (3,168.00)
Minority interests        (44.00)      (109.00)       (102.00)       (211.00)         (79.00)
Replacement cost – Profit or loss attributable to equity shareholders     3,140.00     5,598.00  (16,973.00)  (11,375.00)     5,527.00
Gains or losses from holding inventory     1,874.00        705.00       (284.00)         421.00     2,128.00
Taxation charge on gains or losses on holding inventory      (629.00)      (224.00)         107.00       (117.00)       (708.00)
Profit or loss attributable to equity shareholders     4,385.00     6,079.00  (17,150.00)  (11,071.00)     6,947.00

(Source: Karol, B, 2009, p-57)


4.6 Impact of oil spill incident on the CSR of BP plc:

BP recognized for the 1st time on May 20 that the leak was larger than its estimate. However, from now BP, which operated the drilling platform, has still not acknowledged its responsibility in this disaster. Neither BP, nor any other company. Now the question is who is responsible for the explosion and the massive oil spill in the Gulf of Mexico. According to some people, the one who caused the accident is BP. Some journalists point the finger at BP’s partner which was operating on the drilling platform. Rick Perry, Texas Governor, describes the disaster with the term “act of god”. In fact that is true. Some oil companies can use the term “act of god” as a defence, it is a legal definition. However, according to the Oil Pollution Act(OPA), an act of god happens when the disaster is caused by a natural phenomenon. This phenomenon must be exceptional, inevitable and irresistible. However, in BP’s case, it can’t be said that an explosion is a natural phenomenon. Someone must endorse the responsibility of this accident. While people are still waiting for the evidence, BP is highly suspected to be responsible for this accident. And it can not blame others for that. It is to be kept in mind that the company had already caused an explosion in 2005 at BP’s Texas City Refinery. The US Occupational Safety and Health Administration claimed later that BP had failed to implement safety improvements following this disaster. It shows quite well how BP can be an irresponsible company.

Too many people use the term  “CSR” when they actually want to talk about basic business ethics issues like honesty or product safety or workplace health and safety- things that are not, in any clear way at least, matters of a company’s social responsibilities. However the BP oil spill raises genuine CSR questions- it is very much a question of corporate, social, responsibility. BP is in the business of finding oil, refining it and selling the gas (propane) that results. In the course of doing business, BP interacts with a huge range of individuals and organizations, and those interactions bring with them ethical obligations. Basic ethical obligations in such a business would include things like:

1) Providing customers with the product they’re expecting (rather than one adulterated with water)

2) Dealing honestly with suppliers

3) Ensuring reasonable levels of workplace health and safety

4) Making an honest effort to build long-term share values

5) Complying with environmental laws and industry best practices and so on.

Most of those obligations are obligations to identifiable individuals (customers, employees, shareholders etc.). There is nothing really “social” about those obligations (with the possible exception of compliance with law, which might better be categorized as an obligation of corporate citizenship or more directly an environmental obligation). And it is entirely possible that BP, in the weeks leading up to the spill, met most of those ethical obligations. The exception, of course, is workplace health and safety- 11 workers were killed in the Deepwater Horizon blowout. But even had no one been killed or even hurt during the blowout, a question of social responsibility would remain.

Precisely the fact that the risks and eventual negative impacts of BP’s deep-water drilling operations are borne by society at large. The spill has resulted in enormous negative externalities- negative effects on people who weren’t involved economically with BP, and who didn’t consent (at least not directly) to bear the risks of the company’s operations.

Now all production processes involve externalities. All businesses emit some pollution directly or indirectly via the things consumed and impose some risks on non-consenting third parties. Therefore, the question of CSR has to do with the extent to which a company is responsible for those effects and the extent to which companies have an obligation to contribute socially (beyond making a product people value) as well as to avoid social harms or risks. From a CSR point of view, then, the question with regard to BP is whether the risks taken were reasonable. Almost every one may say no. However, some people still want plentiful cheap gas.

As mentioned by Larry and Fuerst (2011) in the section 2.10 the BP oil spill provides an excellent way to illustrate the way one can understand the scope of the term “corporate social responsibility”, and how to keep that term narrow enough for it to retain some real meaning.



4.7 Impact of oil spill incident on the stakeholders of BP plc:

As a result of a corporate disaster, such as the BP spill, same-industry firms’ stock prices can be affected by changes in investors’ assessments of the probability of (1) increased regulatory costs and (2) similar disasters by or for other firms. Corporate disasters can result in increased government regulation. Investors are aware that stricter rulescan increase a firm’s operating costs and these increased regulatory costs can have a negative impact on firm value. Firms incur political costs to fight proposed legislation and to participate in the policy-making process. Environmental disasters can also increase investor awareness regarding the potential for another accident within the industry. Based on disclosures from oil and gas firms, statements in trade publications and prior research on corporate disasters, it is argued that the BP spill created the potential for increased regulatory and expected future disaster costs for the oil and gas industry. This hypothesis is not without tension, however. An increase in expectations by investors of future disaster costs is far from certain. Such expectations depend on whether investors believe the BP spill is a one-time, highly unlikely event or is indicative of widespread safety lapses in the industry. Additionally, prior research notes that shareholder wealth changes due to increased expectations of regulatory costs can be mitigated if investors expect legislators to offset increased regulatory costs with other favours, such as tax relief. Indeed, various sources suggest oil and gas firms have often received favourable political treatment and suggest the potential for regulation targeting BP that could benefit other oil and gas firms. Thus, the stakeholder wealth impact of the BP spill for the oil and gas industry is an empirical question. Results suggest no shareholder wealth changes for the oil and gas industry as a whole, however, stakeholders in firms with offshore operations in United States waters experienced a significant decline in wealth. As suggested by Chiadamrong (2012) in the section 2.9 that the investors expected increased regulatory and or potential disaster costs, however, only for firms with deep water offshore operations in the United States.




Chapter 5

Interpretation of results

Objective 1:

Critical evaluation of the financial and Business performance of BP Plc before and after the Oil spillage disaster:

The effect of the oil spillage disaster on the financial and business performance has been discussed in the section 2.7. As mentioned by Ahrens (2012) in the section 2.7, to cope up with the situation the contingent liability of the firm has increased drastically. Moreover, as mentioned by Chapman and Kihn (2007) in the section 2.7, the trust fund has also improved in the same period. However, in the section 4.1, the financial position of the firm before the oil spillage incident has been shown. From the discussion, it can be concluded that the oil spillage incident has affected the performance of the firm drastically. On the other hand, from the table 4.2 it can be seen that the closing price has come down drastically in the period of oil spillage incident.

Objective 2:

Critical assessment of the impact of the Oil spillage on the corporate social responsibility of the company:

The impact of oil spill incident on the CSR activities has been the discussed in the section 2.8. According to the view of Srivastava (2008) in the section 2.8 oil spill incident has compelled the firm to adapt the CSR activities. Moreover, from the discussion it can be interpreted that by maintain the CSR activities the firm has been able to keep a sound relation with the Government. On the other hand, from the table 2.3 it can be seen that the firm has spent funds to keep the environment pollution free after the oil spill incident. From the analysis, it can be said that the firm has managed to maintain the CSR activities in a better manner after the oil spillage incident. Moreover, from the analysis in the section 4.5 it can be assumed that the company has managed a sufficient amount of cost termed as the replacement cost after the oil spillage incident. CSR rating has also shown in the section 4.6 to understand the reaction of the stakeholders about the CSR activities of the firm. 

Objective 3:

Other factors contributing towards the recovery phase after the oil spillage disaster:

From the discussion in the section 2.10 it can be assumed that financial resources and the human resources have been used mostly in the recovery phase after oil spillage incident. Moreover, from the discussion in the section 4.4 it can be assumed that in the recovery phase the firm has to manage the non-operating costs in the effective manner to cope up with the situation.




Chapter 6: Conclusions:

Objective 1:

Critical evaluation of the financial and Business performance of BP Plc before and after the Oil spillage disaster:

The deep water oil spill incident occurred on 20th April, 2010. The incident resulted in the death of 11 people. In addition, the incident had badly affected the financial performance and corporate social responsibility of BP plc. The trade and commerce of the Gulf region were also affected by the incident. The incident raised questions on the risk management and CSR of BP plc. The oil spill incident has increased the replacement cost of BP plc which further affected the cash flow position of the company. The incident made BP plc to spend billions of dollars towards cleaning and restoration activities. The administration cost of BP plc got increased due to this. The company had to pay $4 billion to the US government as directed by the court. The interest burden of the company got increased to $175 million on account of the oil spill incident. BP plc has recorded the provisions for environmental expenses, claims, spill response, and clean water act penalties. The environmental provision was estimated to be around $320 million post occurrence of the oil spill incident. The legal expenses of the company got increased by a considerable amount. In addition, the gross revenue of the company has shown a consistent downfall following the oil spill incident. The revenues of BP plc decreased by 0.47% post occurrence of deep water oil spill incident. The gross and net profit margins of the company got reduced by 1.20% and 1.56% respectively following the oil spill incident. All these have further reduced the return on employed capital by 3.8%. The EPS of BP plc decreased by 19.81% in 2010 after the incident.

Objective 2:

Critical assessment of the impact of the Oil spillage on the corporate social responsibility of the company:

The oil spill incident has also a negative impact on the CSR of BP plc which further affected the brand image of the company. The incident has raised various protests from many parts of the world. The reputation of BP plc got badly damaged by the incident. Questions were raised on BP’s compliance to the human rights law. This oil spill incident has also affected the stock price of BP plc which has shown a considerable and consistent decrease after the incident.

Objective 3:

Other factors contributing towards the recovery phase after the oil spillage disaster:

BP plc has taken various initiatives towards the cleaning and recovery activities but the attitude of the management seems to be lenient in the initial phase. However, the company has put considerable efforts after it realised the fast and drastic effects of the oil spill incident. BP plc invested a huge amount towards research activities to study the oil spill incident. The company has also invested in the recovery of the trade and commerce that got affected by the incident. BP plc has taken a systematic approach to manage and control the situation. The workers of BP had used floating booms to prevent break-down of oil and other chemicals under the water to control further spreading of the oils to the beaches. This was followed by safety and precautionary advices provided by the company’s workers to protect the workers and local people. The initiativestaken by BP plc to save the fauna and flora regions from the negative impact of the oil spill incident is also praise-worthy. Bp plc had entered into tie-up with the Smithsonian’s National Zoological park for the rescue operations. BP plc has also used advanced technologies, robots, and equipment to study the long-term effects of the oil spill incident on the water bodies, local people, and industry.

Overall Conclusion:

Corporate governance is concerned with the philosophy, policies, and procedures followed by an organisation in its daily business decision making and operations. Good corporate governance is essential for consistent growth, sustainable competitive advantage, and long-term sustainability of an organisation. However, companies often fail to recognise the importance of corporate governance policy and identify best corporate governance practices to enhance the quality of corporate governance in the organisation. Decision making, organisation, business operations, and communication system is reflected through corporate governance policy of an organisation. Effective corporate governance policy results in good business practices and sound decision making which further offers growth opportunities for both investors and other stakeholders. Corporate governance is mainly based on business ethics because the principle aim of corporate governance policy is to ensure good for all the stakeholders.

Objective 2:

Critical assessment of the impact of the Oil spillage on the corporate social responsibility of the company

Corporate governance policy has a significant impact on the brand loyalty and brand value of an organisation. The goodwill of a firm is determined by the effectiveness of the corporate governance policy. Foreign investors consider corporate governance as one of the prime criteria for investment decisions. Good corporate governance allows a firm to obtain long-term cooperation from its investors even during time of economic down turn and poor organisational performance. Investors, employees, and customers are often considered as the most important stakeholders to an organisation. Hence, a company needs to take responsibility for all its decisions and actions that might impact all these stakeholders. Investors provide the required finance to a company. Employees are responsible for the production of quality goods and services for the customers. Customers are the direct source of revenues for a company. Thus, the corporate governance policy of a company needs to ensure fulfilment of corporate social responsibility. Good corporate governance enhances the image of an organisation which further allows the firm to obtain credit from banks and other financial institutions easily. Risk management is an integral part of the corporate governance of a company as risk occurrence affects all the stakeholders associated with an organisation. Therefore, consistent risk monitoring, risk identification, and risk prevention or risk mitigation is one of the vital elements of corporate governance.

There are both financial and non-financial impacts of corporate governance on the stakeholders and the organisation itself. Non-financial impacts include improvement of brand image, increase of customer loyalty, and better communication process. In contrast, financial impacts of corporate governance include sales revenues, profitability, economies of large scale operations, Earnings per share (EPS), and dividend payout ratio. Companies known for good corporate governance and ethical business practices are able to attract new customers and retain existing customers more easily than companies lacking good corporate governance. It is a common belief among customers that the products and services of a company known for good corporate governance are better than others. Thus, customers are more inclined towards the products and services of such companies. Higher sales revenues reduces the per unit total cost of the products which results in overall profitability of the organisation. Better brand image as a result of good corporate governance reduces the necessity of advertising and thus advertising costs is also reduced. The competitive advantage of the firm is increased as the firm is able to reap more profits without increasing its selling price. In addition, greater sales revenues enable a company to invest more money towards research and development activities which allows a firm to eliminate the negative impact of market saturation. An organisation is also able to operate on a large scale due to greater sales revenues as a result of improved brand image. Large scale operations help a firm to reduce the opportunity costs of funds through high discounts from bulk purchases. EPS and dividend payout are highly affected by the corporate governance policy of a firm. Higher profitability as a result of greater sales revenues and lower cost of production enhances wealth of the shareholders. In addition, higher net profit allows a firm to declare greater dividend payout for its investors.

Risk management is yet another vital aspect of corporate governance. There exist various types of risks like economic risks, exchange rate risks, inflation risks, credit risks, political risks, safety risks, quality risks, and others. However, risks can be broadly divided into financial and reputational risks in respect of corporate governance. Occurrence of sudden risks might result in financial losses for the firm. In addition, sudden risks might badly affect the goodwill of the firm. However, the corporate governance of an organisation is influenced by a number of factors. These are available organisational resources, financial strength, resource allocation procedure, and market competition.

However, the risk management system of BP plc can be considered as ineffective prior to the oil spill incident. The company failed to identify the risk of the incident beforehand which could have saved millions of dollars of BP plc. Funding of the rescue, cleaning, and restoration activities involve huge interest and opportunity costs. The short-term cash flow position of the company also got affected which has resulted in delaying the payments to creditors. The current and quick ratio of the company got affected. In addition, the financial leverage of the company also got increased. The stock price of the company decreased from $45.22 on 1st April 2010 to $36.74 on 1st Dec 2010. The major concerns among the shareholders were regulatory costs, probability of similar incident in future, actions of regulators of similar oil spill incidents, and supply and demand. BP plc had to spent heavily towards cleaning expenses, determination of degree of impact, promotion of tourism industry, sea-food testing, and contribution to trust funds. The company also had to bear a pre-tax charge of $40.9 billion due to the incident.

Therefore, the key issues identified through this research work are lack of effective risk management system, high interest rate burden, poor liquidity position, and lack of confidence among shareholders. Bp plc needs to take suitable initiatives to address these issues.

The research has been able to meet the research aims and objectives. The current study has presented the financial and business position of Bppl before the occurrence of the oil spill incident. The research work has also evaluated the impact of oil spill incident on the CSR of BP plc. This is followed by the identification of current issues and development of potential recommendations to address these issues. The recommendations are expected to help BP plc in better managing the recovery activities. The research has also conducted an evaluation of the steps taken by BP plc to minimise the impact of the oil spill incident. Hence, based on literature review, findings, and analysis it can be concluded that ll research questions have been answered and that the research objectives have been met.

Gaps in the study and the future scope of development:

The entire study deals with the secondary data. In order to understand the role of the CSR activities of the BP plc the perception of the customers’ needs to be addressed. Moreover, in future, the researcher can further develop the study by taking the feedback from the mangers to understand the internal strategies of the firm.  It has not been possible by the researcher to collect the latest possible data in all the cases. Therefore, in future the quality of the study can further be improved by incorporating the latest data.



 Chapter 7: Recommendations:

This chapter presents suitable recommendations in the form of potential strategies based on conclusions drawn above. These recommendations are aimed at addressing the identified issues and strengthen the CSR initiatives of BP plc. However, proper understanding of the key issues of BP plc as identified through the current research is important. Hence, the researcher presents a brief discussion on the major issues identified through this research work.

7.1 Potential strategies:

The researcher has developed the following recommendations based on findings and analysis of secondary data in chapter 4 of this study:

Effective risk management system:

Environment monitoring, risk identification, and risk mitigation are the three major stages of risk management system. However, BP plc needs to increase the proportion of non-executive directors in its risk committee to enhance the effectiveness of the committee. A proper risk management model needs to be developed to enhance the efficiency of the risk management system.

BP plc needs to develop a risk management and internal control committee that would be responsible for overseeing the organisational risk management and managing the business risk management process. The committee needs to be responsible for identifying and reviewing the principle risks.In addition, the committee needs to provide valuable advice to the Board based on risk evaluation. However, BP plc needs to ensure that the performance and efficiency of the risk management committee is assessed by the Board itself. Effective internal control system is one of the crucial responsibilities of the risk management committee. In addition, the risk management system of BP plc needs to comply with the Turnbull report in respect of the risk management and internal control system. The process that can be followed by BP plc in respect of the risk management process is presented below:

  • Risk identification
  • Planning
  • Deriving of safeguards against potential risks
  • Risk monitoring

However, it is important to understand that risk measurement is the soul of risk management. The probability and impact of eachriskneeds to be properly analysed for the development of sound risk mitigation strategies. BP plc can apply the below mentioned risk management techniques based on the outcome of risk measurement:

Risk avoidance:

Risk avoidance is the basic risk management technique through a potential risk can be completely avoided by taking various initiatives. However, both qualitative and quantitative factors associated with the identified risk needs to be considered.

Risk reduction:

The best option in respect fo risk management is risk avoidance however it is not always possible to avoid all the risks. Therefore, risks that are not avoidable completely need to be reduced. Risks can be reduced through internal adjustments in business planning and operations. The aim is to reduce the probability and impact of potential risks.

Risk sharing:

The third best option for BP plc could be risk sharing. This technique can be used in situations where risk avoidance and risk reduction both are impossible. The impact of a risk is spread through risk sharing. A risk can be shared through joint-venture, strategic alliance, and mergers and acquisition which can reduce both the sunk cost and probable financial losses.

Risk retention:

This strategy does not involve any technique but it is indeed a decision or judgement to accept the risk.There might be cases in which risk avoidance, risk reduction, and risk sharing seems to be impossible. Certain risks can be accepted if the expected positive return from a project is greater than the negative outcomes of a project.

However, BP plc needs to ensure that the employees have clear understanding of the risk management process. In addition, risk registers need to be maintained for all business of BP plc along with group key risk register. The group risks can be determine after discussion between the risk management committee and the board.

The principle risks identified for BP plc are mentioned below:

  • Financial risks
  • Competition risks
  • Reputational risks
  • Performance risks
  • Property risks
  • Economic risks
  • Political and regulatory risks
  • Product safety
  • IT systems and infrastructure
  • People risks
  • Treasury risks
  • Compliance risks

Focus on reduction of interest burden:

Interest burden has been identified to be one of the major impact of the oil spill incident on the financial performance and position of BP plc. The problem is interest charge is inversely related to the profitability of the enterprise. Hence, rise in interest cost would surely reduce the net profit of the company in the coming future. In addition, the additional interest paid by BP plc as a result of the oil spill incident could have been invested towards business expansion, research and development programmes, and others. This raises the importance of corporate governance for BP plc. Risk management system of the company has come under question. However, necessary initiatives need to be taken to reduce the interest cost of the company to increase profitability. BP plc needs to focus on repaying the additional loans and liabilities taken to address the oil spill incident.The cash flow statement and balance sheet ofthe company need to beproperly analysed to determine appropriate strategies for early repayment of the loans. BP plc can take appropriate actions for fast collection of dues from all type of receivables to pay-off the loans.In addition, BP plc can also use its fixed deposits, investments, reserves, and retained earnings to pay-off the loans before the due date to save on the interest costs. Here, it would be essential for the company to conduct an analysis of the opportunity cost of funds taken out of reserves, deposits, investments, and retained earnings against the quantum of interest costs saved due to early repayment of loans. Funds from reserves, retained earnings, and deposits can be used if the opportunity cost associated with these funds is lower than the interest cost saved.Reduction of interest burden would in turn enhance confidence level among the investors. This would surely increase the stock price of BP plc.

Sound working capital management:

Cash is considered as the most liquid of all current assets whereas inventories are considered as the least liquid of all current assets. The liquidity and cash flow position of BP plc has been affected by the oil spill incident and associated spending of BP plc in this regard. Therefore, it is vital for BP plc to adapt effective strategies to improve the cash and short-term solvency position of the company. First of all, BP plc needs to increase its creditor payment period and shorten debtor collection period. This would improve the cash balance of the company. BP plc can also initiate centralised payment facility as this would reduce administrative costs of the company. The treasury manager can also resort to ‘playing the float’ strategy to improve cash balance. All major capital investment projects need to be postposed to later phase. It is difficult for BP plc to implement Just-in-Time (JIT) inventory system due to its nature of business. However, BP plc needs to focus on reducing its quantum of inventory which would automatically release cash into the business which could be invested in short-term to earn interest thereon. BP plc can use Economic order quantity (EOQ) to save on overall cost of inventories. In addition, BP plc can focus on investing short-term cash surplus to increase the cash position of the business. However, there exists an inverse relationship between profitability and liquidity. Greater investment in short-term would temporarily reduce the liquidity position but would increase profitability. In addition, cash generated in the form of interests from short-term investment would also improve solvency position of the business in the long-term. The credit policy of the company needs to made more stringent to reduce chances of bad debts, if any. However, measures need to be taken to ensure that the sales volume is not affected by this. Credit evaluation needs to be based on character, capacity, and collateral of the potential customer.

Stakeholder awareness programme:

Lack of confidence among major stakeholders like investors, employees, customers, and suppliers need to be immediately addressed before further worsening of the situation. BP plc needs to take necessary initiatives to convince its stakeholders about the development of its risk management system and future prospects of the business. This would enable the company to obtain greater cooperation from the stakeholders. BP plc can conduct more frequent meetings with stakeholders to discuss on past performance and new possibilities. Minutes of these meetings need to kep for future references. However, the management needs to create an environment of open discussion to encourage all stakeholders communicate freely. Bp plc can conduct monthly open forums with its employees to identify the problems faced by employees. The concerns of the employees need to be addressed properly. The pricing, policies, and offers of the company need to be communicated through effective medium to the customers. In addition, BP plc needs to collect valuable feedback from customers and conduct proper analysis of the feedback. Periodic meetings are also needed to be conducted with the suppliers to brief on the organisational policies, codes of conduct, and quality parameters. The principle objective of all these initiatives would be to convince the stakeholders about the future growth prospects of the company. BP plc needs to convince its stakeholders that the company is capable enough to overcome the negative impact of the oil spill incident. Another objective of these initiatives would be to create awareness among the stakeholders on environment sustainability and codes of conduct of the organisation.The company needs to ensure a two-way communication process in these meetings. Stakeholder engagement is vital for the company’s recovery from the current situation.



Chapter 8: Personal development

Master of Business Administration (MBA) is mainly concerned with the development of personality and leadership skills to enhance managerial capabilities of an individual. Employees are hired for the hard skills but are often fired for the lack of soft skills. MBA is not only about knowledge but is focused on the application of the knowledge through effective leadership skills. As a student of MBA I feel that periodic assessment of personality is highly important. It is also vital to keep a track of the personality development in me. At present, the MBA curriculum has developed various leadership qualities like group discussion skills, presentation skills, time management, and others. However, I feel that evaluation of my current personality would help me to identify the key areas of personality development. In this regard, use of an appropriate framework or model can improve the quality of the evaluation process and the outcome. An ideal process for the personality development programme is presented below:

  • Personality evaluation
  • Identification of areas for improvement
  • Preparation of personality development plan
  • Implementation of the plan
  • Review

I think that the ‘Big five’ or the ‘Five factor’ model would help me to evaluate my current personality. However, before application of this model it is important to understand the model and its necessity.

The Big five model was first developed by D.W Fiske in 1949 followed by significant development of the model by major contributors like Norman, Goldberg, McCrae and Costa, and others. The model considers five major personality traits as mentioned below.


Assertiveness, expressiveness, sociability, and talkativeness are major dimensions of this trait. This trait indicates how energetic and positive an individual is.


This trait measures the degree to which an individual is cooperative and compassionate in nature. This trait states how far an individual is helpful and trusting. Kindness, trust, affection, and altruism are the major dimensions considered under this trait.


This trait indicates how far an individual is thoughtful and organised in nature. In other words, this trait measuresthe level ofself-discipline and goal oriented attitude of an individual.


The emotional stability, irritability, sadness, mood swings of an individual is measured by this trait. Low score in this trait indicates emotional stability, high mood swings, sadness, nervousness, and irritability of a person.


This trait is concerned with curiosity, adventure, emotions, sociability, assertiveness, creativity, and talkativeness. This trait explains the degree to which an individual is imaginative, expressive, and independent. Highs score in this trait indicates a wide interest range of the individual.


Five factor analysis:

Personality traits Score Outcome
Extraversion LOW Quit, passive, introvert, and reserved
Agreeableness HIGH Trusting and helping nature
Conscientiousness MEDIUM Poor time management and lack of discipline
Neuroticism LOW Calm, unemotional, and even-tempered
Openness HIGH Creative, Curious, and imaginative


The above analysis reflects that I need to improve on the Extraversion and Neuroticism factors. I believe that I need to work on sharpening my public speaking skills and time management. Taking advices from experts can help in this regard. However, proper job prioritising, division of time for completion of each task, and elimination of procrastination can help in the development of my personality. Improvement of these traits would enhance my leadership skills and enable me to be a better manager in future.



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Different financial cost:

Items Amount
Pre-tax charge $40.9 billion
Cost of escrow account $20 billion
Cost of research programme $500 million
Cost of 6 beams in the Louisiana barrier island project $360 million
Fines and penalties $4,300 million

 (Source: Karol, B, 2009, p- 59)



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