Tony Hayward of BP
Situation at the Time
BP Oil Company is a British owned company and it initiated the deepwater rig to exploit the oil resources at the deep-sea in Texas. However, the company did not do the job directly but sub contracted other companies to help in the extraction of oil.
The then company CEO, Tony Hayward, chose to outsource the services to other firms (Kalantarnia, et al 2010, p. 191). The Swiss firm Transocean was hired to drill the oil, while it subcontracted the well construction to Halliburton Company. Cameron international was on the other hand given the responsibility of making the blowout preventer (Steffy, 2010, p. 103). However, things did not turn out well, since the rig ended in a blast that killed 15 people and injured many more. Hayward was then accused for having failed in his duties. Transocean accused him of having chosen a cheap well design that was not of the required standard.
Motivation of the decisions
Before Tony Hayward took over, Browne seemed to be leading the company on a success trail through several mergers and acquisitions, and the firm was performing very well. When Hayward took over its leadership he made some critical mistakes that triggered the explosion accident. This was because he was under pressure to continue to maintain the good performance of BP. His strategy of cost-cutting made him outsource most services through subcontracting them to external companies. In addition, he laid down many of the company engineers in an effort to cut down expenses (Steffy, 2010, p. 106).
This mistake was one grave thing to do because the company had to give up its effective authority to control and provide safety and other services to its workers. The consequences were dire as it resulted in an explosion that caused a great damage to human life and the environment. Hay later started accusing Halliburton contractors for using substandard construction means, although BP was the one that designed the cheap well. They used a single layer of cement rather than the normal two layers (Kalantarnia, et al 2010, p. 193). Moreover the blowout preventer designed by Cameron international used sea water instead of the recommended fluid resulting in failure.
The Impact
Having developed a culture of risk-taking to maximise company profits, Hayward failed to take action against the warning signs that were reported by the workers. Instead he postponed the responsibilities to the following year’s budget. The result of such irresponsible decisions ended in a blast in Texas City and the Transocean workers who were at the site died, while others were injured. Records report that 15 workers died and 170 people suffered injuries from the blast (Steffy, 2010, p. 102). The then US secretary of state took the responsibility of investigating the accident and he published a report explaining what took place and the reasons behind it. The report basically revealed that there was a problem with the management where bad decision had been made regarding safety on several occasions.
In an interview, Tony Hayward said that he blamed his contractors Halliburton for the shoddy job at the well. However during the case hearing, evidences showed that there were very high chances that BP Oil Company could have opted for a cheaper design of the well to use a single layer of cement so as to save about $ 7 million. An experts engineer in oil well construction commented that the only possible reason why BP had done that was to save money (Kalantarnia, et al 2010, p. 193).
Bernard Ebbers of WorldCom
Situation at the Moment
WorldCom developed to become a big company by making long-term deal with other telecommunication companies so that it could get into the networks business. The company was then required to pay some fixed amount to the carriers referred to as ‘line costs’. These agreements had started in 1990s and even by 2000s the growth of the company had not materialized and the money that WorldCom was making could not meet the company’s expenses.
Basically, if the decline in the WorldCom’s dealings could have been exposed very early, then its share prices could have dropped dramatically from $64 in 1999 to a very smaller figure (Kaplan & Kiron, 2007, 106). Bernard Ebbers did not want to admit that the company was on the verge of collapsing and that the once bigger company could face such serious financial problems.
Motivation for the MoveS
A the company expanded, the operations became complicated especially the accounting systems and customer services and according to investigators, WorldCom was struggling very hard to keep up the pace (Albrecht et al, 2008, 186). Ebbers discouraged employees from bringing matters to his attention and he stated openly that he only wanted to hear good news. This decision to avoid integration of suggestions from employees in decision making showed that he was set to see the company succeed at all costs even when it meant falsifying the financial records (Sidak, 2003, p. 207). As such, his employees admitted than there was inflation of earning, double record of single sales and so on.
The Impact
Dspite the attempts to inflate the financial position of the company, Ebbers could not prevent the stock prices from dropping and in the year 2002, the prices were very low and Ebbers was forced to quit by the board (Kaplan & Kiron, 2007, 107). After he had left, evidence revealed that, the CEO had failed to confront some crucial problems where Ebbers’ denial of handling the economic situation honestly was the cause of the company’s financial problems. In July, 2002, WorldCom was forced to file for bankruptcy protection and by 2004 the company was still having a debt of $5.7 billion (Albrecht et al, 2008, 186).
In 2005, Ebbers faced charges of fraud, documenting false information and conspiracy and was convicted of which he was found guilty of all of them (Sidak, 2003, p. 207). He was consequently sentenced to incarceration for 25 years. WorldCom was purchased by Verizon for $ 7.6 billion and incorporated as part of it.
Reference List
Albrecht, W.S., Stice, J.D & Stice, E.K. (2008). Financial Accounting, Cengage Learning, p. 186.
Kalantarnia, M., Khan, F., & Hawboldt, K. (2010). Modelling Of BP Texas City Refinery Accident Using Dynamic Risk Assessment Approach, Process Safety and Environmental Protection, Vol. 88, Issue 3, Pp. 191-199.
Kaplan, R. & Kiron, D., (2007). Accounting Fraud at WorldCom, Harvard Business School, p. 104 – 171.
Sidak, J. G. (2003). The Failure of Good Intentions: The WorldCom Fraud and the Collapse of American Telecommunications After Deregulation, Yale Journal on Regulation, Vol. 20, No. 2, pp. 207-267.
Steffy, LS. (2010). Drowning In Oil: BP & the Reckless Pursuit of Profit, New York, Mcgraw-Hill Professional, Pp. 102- 186.
Schnoor, J. (2010). The Gulf Oil Spill, Environ. Sci. Technol., 2010, 44 (13), P 4833.
Deepwater Horizon Oil Spill: Selected Issues for Congress By Curry L. Hagerty.