What Does BP Owe its Shareholders? Nothing.

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.)

8 comments so far

  1. Dan on

    So you’re saying I should get off my (figurative) high horse and get onto my (literal) high horse?

  2. Chris MacDonald on

    Dan, you’re going to have to explain that. No mention of horses above, figurative or literal.

  3. Barbara Kimmel on

    I am currently reading “Managing for Stakeholders: Survival, Reputation, and Success” by R. Edward Freeman, Jeffrey S. Harrison and Andrew C. Wicks. Perhaps someone should send Mr. Hayward a copy. Barbara Kimmel, Executive Director, Trust Across America

  4. Keith Rye on

    Er, sorry, excuse the obvious here (or may be my obvious) …. BP owes it shareholders everything, 100% – as it does its employees and other stakeholders? If it does not put 100% into this, then who knows where it (BP) will end up? The thought of BP becoming a take-over target gets more interesting by the day (and by each comment from Tony Hayward) or is there an Enron shredding argument here?

  5. Chris MacDonald on


    It’s not at all a book I would recommend.

    MacDonald, C. Review of “Managing for Stakeholders,” Business Ethics Quarterly, 19: 4. October 2009. 621-629


  6. Chris MacDonald on


    The question I’m posing is not how much effort BP should expend. It’s how they should balance the competing claims of various stakeholders. In that regard, you can’t give 100% to more than one stakeholder.

    My argument implies that 100% of their efforts (and expenditures) should go to cleanup, rather than to preserving sharholder value.


    • Keith Rye on


      On the basis of 100% being all, we agree. Without 100% effort into cleaning up, 100% into “hands up, we messed up (and continued to do so)”, 100% into accepting responsibility for the events and their consequences, 100% into open and honest public relations, 100% humble ….. (and what ever other 100% are appropriate) forget any notion of preserving shareholder value in the longer term (the short-term sunk fairly quickly). Do I hear Gazprom becoming interested …..

  7. […] MacDonald considers the ethical elements of what is owed the shareholders of British Petroleum. His conclusion is dramatic. (And I think giving the comments a read is a good idea on this […]

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