The Business Ethics Blog

People have generally been dismayed at the behaviour of BP execs in the wake of the disastrous oil spill. CEO Tony Hayward has been roundly criticized, both for his overall handling of the situation, and for asking dumb questions like “What the hell did we do to deserve this?” The unmistakable impression is that BP’s ‘heart’ really isn’t in it when it comes to fixing this mess, and that they’re more interested in preserving what’s left of their reputation and in protecting profits.

How, ethically, ought BP’s execs to be behaving? Where do their obligations lie? Should they be focused 100% on cleanup? Should they be trying to preserve and build shareholder value? Should they be balancing those 2 objectives?

Generally, the task of corporate managers is to build wealth for shareholders. Don’t forget, executives are hired to run a business they don’t own, so it’s not up to them to decide how to run it. The standard view is that their job is to serve the shareholders. As long as they do so in constructive ways — through innovation, efficiency, etc. — and as long as innocent bystandards aren’t hurt, such profit-seeking is in fact socially beneficial. So one way to think about business ethics is that managers are free to compete aggressively, focused primarily on shareholder value, as long as they’re not misleading customers, abusing monopolistic power, or foisting costs on bystanders (i.e., imposing what economists call “negative externalities”). Those behaviours represent the boundaries of the ‘game,’ as it were. Within those boundaries: play ball!

This view implies that as long as a company keeps its nose clean, they don’t need to feel bad about pursuing profits, even when doing so means, for example, putting a competitor out of business, resulting in a loss of jobs, etc.

OK, so now consider BP. A year ago, BP’s managers might have been able to say something like this: Our job is to build shareholder value. We do that by producing a product society needs and is willing to pay for. As long as we don’t pollute too much (after all, all industry creates at least some pollution) it’s ethically OK for us to focus on our the interests of our shareholders.

Now, fast-forward to right now, to June of 2010. BP’s managers can’t exactly help themselves to the above argument, can they? The condition that normally justifies the zealous pursuit of profits doesn’t obtain, here, because BP’s managers haven’t been anywhere near sufficiently careful about avoiding imposing costs on others. Indeed, they’ve imposed massive costs (massive negative externalities) on the people of the Gulf Coast states, and (less directly) on the rest of us too.

So, when BP’s managers look around them, at the wide range of individuals and groups with a stake in their current decision-making, how much weight are they justified in giving to the interests of their shareholders, i.e., to the people who benefited from their profit-seeking behaviour in the first place?

I’d say “roughly zero.”

(The philosophical version of the argument for the basis, and limits, of profit-seeking behaviour can be found in Joseph Heath’s “An Adversarial Ethic for Business: or, When Sun-Tzu met the Stakeholder,” Journal of Business Ethics, 69, 2006. A downloadable version is on Joe’s page here.)