Ethics and Governance
An assumption is that Sir Rose pressured the Board for the appointment this is to say that since there was no clear Executive Chairman, Rose saw himself fit for the role. And in a sense, the Board agreed. Sir Rose played a significant role in keeping the company afloat during the hardships of the industry, especially his engineering the dramatic improvement in the retailers performance from 2004 (Jacovitz, 2008). What could also lead to this decision was to keep Sir Rose happy, and it was a way for the company to keep him after the expiration of his contract in 2009. The Board decided to keep him and cited the Combined Code as a means to maintain its agenda.
Sir Stuart Rose had been the Chief Executive Officer of Marks and Spencer, and with the companys challenges, it seemed that Sir Rose would prove to be indispensable to the firm. His appointment as Executive Chairman, in addition to his being CEO, was met with criticisms from Marks and Spencers shareholders. Leading the opposition was Legal and General (LG) which held 4.35 of MS shares L G expressed that the assignment of Sir Rose for this dual role does not comply with the corporate governance approach in the UK which clearly stated that the function of the Chief Executive Officer and Chairman would be separate (Financial Reporting Council, 2006). Consequences have evidently led to shareholders and the industry questioning the real intention of the appointment, thus, putting Marks and Spencer in the ethical spotlight. This decision would therefore create a controversy that will hang above the companys heads until Sir Rose steps down. Recently, a sense of relief took place when Sir Rose and the company had announced the recent appointment of a new Chief Executive starting 2010, Marc Bolland (Steiner, 2009).
Task 2
Based on Lord Burns explanation, Sir Roses appointment was due to the Boards belief that he would be the best person to lead the company for a defined period of time. Sir Roses performance in the company was seen in Marks and Spencer as a sign of commendable leadership, especially as he was responsible for the companys turnaround (Steiner, 2009).
The main problem with this arrangement is that the appointment challenges the main idea of checks and balances in the corporate setting. Evidently, the main actors in the decision to put Rose in the position would have considered this matter it is at least expected for Marks and Spencer to owe its shareholders and the public an explanation. Corporate governance prevails in any corporate entity as a means to ensure that the company applies the best practices in operation, function and management. According to Colley, et al. (2005), due to the past lessons from corporations, corporate governance has become a public expectation thus stepping beyond the legal framework of corporate function and compliance. This therefore shows that corporate governance has become an ethical measure (Colley, et al., 2003).
There is also the case of differentiating between ownership and control. Corporations, in essence, are legal entities although it enables trade, transaction and commerce, it functions according to a set of legal frameworks. This is especially important as corporations are also defined in terms of ownership and control, thus, highlighting the aspect of resources (as provided by shareholders) and accountability as to the best utilisation of these resources (as provided by management) (Blair, 1995). Sir Roses appointment as Executive Chairman, in addition to his role as CEO which is stated in his contract, combines both ownership and control. What makes this culpable is the concentration of power under one individual, thus, defeating the purpose of establishing sound corporate governance. The question is whether this convergence of power and position is functional or was just merely a formality to retain Sir Rose.
Another culpable decision was Sir Roses investment in a venture by a non-executive MS director, Martha Lane-Fox. Sir Rose, which represents both the interests of the management and the shareholders through his position, can further the conflict of interest with this decision. Because of this relationship, itll be hard to establish Ms. Lane-Foxs independent voice in the boardroom. This can be therefore detrimental to Marks and Spencer, especially in the interests of the shareholders.
Task 3
The explosion of BPs operations in Texas City caused 15 deaths and numerous injuries for its workers. In an investigation called the Baker Report, it was found that the explosion has been due to technical shortcomings that would lead to the culmination of the incident. In fact, it was noted that the Texas City operations was an explosion waiting to happen operating a 50 year-old kit would prove to be hazardous, in addition to the fact that the workers lacked the training and equipment to prevent such incident. Based on this, the following are the governance standards of BP that would lead to these kinds of accidents
The executive managers role in determining appropriate budget allocations - although it is important for firms to become efficient and mind its expenses, there are certain areas that are not acceptable when it comes to these cost-cutting measures. It was found that BPs chief executive, Lord Browne of Madingly, ordered a 25 cut on fixed spending. Safety measures are part of capital spending, and fixed costs have to be consistent in order to ensure that the companys operations are maintained and consistent. With the capital spending decreasing to 54 between 1992 and 2000, and fixed costs falling by about 50, the tendency is that maintenance spending was reduced as well. Because of this, the company had jeopardised its operations.
The lesser power and influence of audit reports - Clearly, the executive managers hold the reins when it comes to determining the budget of the operations. Audit reports are written up in order for the executive managers to determine budget allocations, but since audit reports are not given as much consideration when it comes to the pressing concerns in the company, critical decisions do not take these reports as prime references. The audit reports should therefore serve as a significant source when it comes to operational and budget decisions, especially as this can be cross-referenced to occupational safety reports and recommendations, and the budget.
Decentralised operations - although there are the merits of this operational approach, the challenge is that in BPs case, the safety measures are not implemented according to a centralised set of standards. This is to say that operational efficiency had compromised the safety measures of the company because it seems that the operations function independently, thus, their needs do not gain as much attention in headquarters.
Task 4
The justification of the decisions in BP to cut costs and to generally let its Texas operations go in decline can be primarily pointed at the fact that Texas was formerly owned by Amoco. As BP took over Amoco, the company also inherited the conditions of the Texas operations. In a sense, this gave BP a means to save because Amoco itself also operated Texas under a tight financial leash. Therefore, BP also continued Amocos operational and financial strategy in Texas which would lead to oversights such as investing in essentials such as safety maintenance.
BPs side on the matter was more technical this is to say that the company blamed operator error which would lead to the firing of six employees (Schorn, 2006). Basically, based on the investigation, it can be said that it was an error committed that particular day when the Texas City operation was about to restart a unit that suspended operations because of repairs. What happened was the tower overflowed, and those who operated the unit were not aware of this incident, thus leading to the explosion.
BPs blame on the operators and those cited to be responsible for the explosion demonstrates how the company has failed to see the real problem in the incident. Evidently, there was a domino effect in place the reason behind the technical error was that the employees lacked the training to effectively operate the unit, especially a unit that had been down for repairs. The unit also was not armed with the proper equipment that would help in its operations and function. In addition, BP had been warned of the conditions of the Texas plant as Amoco left it with little maintenance and care, it was BPs responsibility to make sure that its new, old plant would be at par with its safety standards. Evidently, as the Telos Report would reveal, BPs own occupational health and safety standards were not modified enough after another prior BP blast in
Grangemouth, another BP refinery in Scotland.
What is interesting is that the Telos Report showed that even though BP had sufficient data in its possession as to the conditions of its refineries, its employees were not shocked at all. This is to say that there was the acceptable culture as to the hazards of being a player in the oil and gas industry, in addition to the companys lack of regard to the pressing safety measures it should implement. This shows how BPs lack of consideration towards the welfare of its employees is that BPs own safety culture is almost non-existent, and that the occupational health and safety practices in the firm were just mere compliance. The company focused more on market capitalisation instead of capitalising in its own efficient and safe operations.
Task 5
Based on the Marks and Spencer and BP cases, it can be observed that these two firms demonstrated priorities that do not necessarily align with the interests of its shareholders and the public its own corporate and profitability interests. Both companies went through challenges in which they had to make critical decisions that would either serve profit or employees well. As can be seen in the case, the priority has been to maintain profit and politics to the detriment of the shareholders and the people.
Marks and Spencers case can be regarded to be more political the company could not let go of Sir Stuart Rose because of his performance in the company. By contract, his position would leave Marks and Spencer lacking another veteran leader about a year after its Executive Chairman, Lord Burns, left in 2008. The reasoning behind Sir Roses appointment has been mostly based on what the Board felt right for the company, which was justified by means of structural and leadership changes in the company. Apparently, the problem here is not so much on Sir Roses capability to lead as Executive Chairman, but rather, the appointment would lead to the concentration of power which conflicts with the best practices in corporate governance. There is the important purpose of separating control and ownership in the corporate setting, and this is to ensure the checks and balances between the two.
In this case, what would make this particular case a lesson for MS Apparently, criticism would weigh significantly for the company. Influential shareholders like LG are not going to let this issue pass easily. For a time, MS would be subject to scrutiny in terms of its public standing the public has been made aware of the perks that came with Sir Roses appointment, and shareholders also played into controlling what Sir Rose would get.
The public also played significantly into the BP case. Evidently, sympathy went to the victims, and despite BPs defence, they were already at the losing end as expositions would lead to the company having a lesser grasp on its justifications. The law played into BPs case in addition to public outcry. Regulations did not have to change but rather the implementation became stronger.
As can be seen in these two cases, there are the main factors that can strongly influence ethical compliance and practice in corporations the public and the watchdogs which can come in the form of consumer protection agencies, the law, and other players in the industry. In order for companies to keep watch of its own behaviour, it is important for them to understand that transparency is a requirement, and that their every move is being watched. Virtue is a personal matter, but in the corporate setting, an individual does not usually prevail. The chosen leadership is considered as the one who puts the companys interests first, and that primary interest is usually for profit. Virtue can come in the form of an internal auditor, and a redefined and strongly implemented corporate ethics practice and process however, in the end, the influence comes more strongly from the outside, by legislation, regulation, industry standards and the public.
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