Dow Corning Corporation (DCC)’s code of conduct is made by Audit and Social Responsibility Committee (ASRC) in a very long and sophisticated process. The process analyzes DCC corporate cultures in many countries and develops guidelines as a basic communications of legal and ethical standards of business conduct around the world. It also step the ground in each places by developing a workable process for monitoring and reporting DCC business practices. This is a very systematic approach to develop code of conduct. It starts from field research, conceptualizes the facts in general, details it in particular country, and promotes code of conduct as ‘living’ standards of business conducts.
There are some strengths and weakness in DCC code of conducts. The strengths are managements and employees can communicate it and monitor the compliance easily. With this code of conducts, company also can moderate the lawsuits and make universal ethical standards applied to employees all over the world.
The weaknesses are mostly in applying this code of conduct in various countries that have different cultures and law. Therefore, it needs much adaptation according to different countries the company operates. Another thing, this code of conducts includes agents in other country to comply. This is very complex to manage and might shift focus from business itself.
CEO of DCC, Jack Luddington believes these strength and weakness factors are worthier to make company better. Especially, after the government becomes stricter with new corruption foreign practices acts, the risk of breaking the law is getting higher. This will put higher guarantee to keep BCC protected in law.
The situation in country X is difficult. If I were Bill Hargreaves, I will immediately stop the business in country X with previous agents and find some ‘clean’ distributors to keep doing business. Situation in country Y is a little bit sophisticated, especially to conducting business in Asia countries, which has different values. However, points should be taken that we should obey the law. Therefore, DCC should stop supporting political campaign, but prepare for other new support for government such as built public facility or making CSR program cooperating with governements.
Country X and Y case above show us that it is impossible to apply similar code of conducts cross border. Code of conducts need to have generally similar in global perspective, but particularly it should be detailed in each local countries considering law` and ethics.
Deepwater Horizon offshore drilling unit on fire 2010
On April 20, 2010, The Deepwater Horizon oil spill accident happened in Gulf of Mexico, United States of America. This accident, so far, is the biggest marine oil spill in history and the second biggest oil spill in history after Lakeview Gusher Oil Spill in last century. On July 15, after some failed efforts to plug the leakage, BP succeeded to cap the well. Government officials estimated the volume spilled ranged around 4,9 million barrels of crude oil at the rate 35.000 to 60.000 barrels a day. On August 4, BP succeed to do static kill method to seal the oil flow gushing by pumping heavy mud and cement through the blow-out preventer and into the well. To ensure the plug works well, relief wells will be connected into the well pouring of heavy fluids further.
This oil spill has endangered surroundings environment and related businesses, such as fisheries and tourism.Many experts have been working to protect beaches along the northern Gulf coast using skimmer ships, floating containment booms, anchored barriers, and sand-filled barricades along shorelines. The U.S. Government has put BP as the responsible party and officials have committed to holding the company accountable for all cleanup costs and other damage.
Since Deepwater Horizon oil spill occurs in current time, many updates are found in media regarding how BP, government, and other stakeholders respond to this situation. Until now, the efforts to minimize environment impacts are still done. This paper’s objectives are trying to see the historical point of view and the event itself from business ethical perspective.
Company History
BP is global third largest energy company headquartered in London, U.K. BP’s name is taken from former company legal name of “British Petroleum.” The company is public company which is listed on LSE and NYSE (Wikipedia, 2010c). BP is a among the largest private sector energy corporations in the world and is one of the six “supermajors”, the six largest non state-owned energy companies.
BP was started in 1901 by William Knox D’Arcy, an Australian-British mining entrepreneur. He was offered a concession by Shah of Iran to explore for oil in the country of Persia (now Iran). Burmah Oil Co joined D’Arcyandin 1908, they found the first commercially significant find in the Middle East and created the Anglo-Persian Oil Company (APOC) in the next year (Australian Dictionary of Biography, 2006). The British government became the APOC main stakeholder on World War I by injecting new capital into the company to get secure oil supplies for its ships.
APOC made good profits through the 1920s and 30s because Western society’s trend in car and power plant consuming massive quantity of petroleum. The company changed the name into Anglo-Iranian Oil Company (AIOC) in 1935.After World War II, many Iranians were not happy with AIOC’s presence. But in 1951, the parliament elected a nationalist, Mohammed Mossadeq, as prime minister. Mossadeq nationalized AOIC and merged it into National Iranian Oil Company. In 1953, U.S. Government succeeded a coup against the Mossadeq government. AOIC resumed operations with only 40% shares in new international consortium. To move beyond its image as a quasi-colonial enterprise, it changed the name into the British Petroleum Company in 1954.
In 1959, British Petroleum Company expanded to Alaska and in 1965 to North Sea. In 1977, British Petroleum Company had already started pumping oil from Alaska down a 1,200 km-long pipeline that ran all the way to refineries in the south of the state. In 1978, the company acquired a controlling interest in Standard Oil of Ohio to expand to U.S. retail market.
During 1981 to 2010, BP had major changes. In 1987, British Government under Margareth Thatcher sold its entire holding in the company, marking privatization. There were also company merger with Standard Oil of California and Gulf Oil in 1984 and also acquisition of Britoil, Amoco, ARCO, and Burmah-Castrol. After all mergers and acquisitions, in 2001 the company formally renamed itself as BP plc and adopted the tagline “Beyond Petroleum.”
BP’s Reputation on Environment and Safety Record
BP was criticized as a bad company based on environmental records. Many events in BP’s history described as bad environment ethic practices. In 1991, EPA toxic release data mentioned BP as the most polluting company in the U.S. and in 1992, Greenpeace International named BP as one of Scotland’s two largest polluters.
In 1999, it was charged by burning polluted gases at its’ Ohio refinery and agreed to pay a $1.7 million fine. In 2000, BP paid a $10 million fine to the EPA and agreed to reduce air pollution coming from its U.S. refineries by tens of thousands of tons.In 2006, Prudhoe Bay oil spill happened in Alaska at BP’s pipeline spilling more than one million liters oil to Alaska and made BP fined $20 million. Two weeks before the blowout in Deepwater horizon, BP refinery in Texas also released large amount of toxic chemicals into the skies from April 6 to May 16, including benzene, nitrogen oxides, and carbon monoxides.
Regarding safety, BP was also criticized as a bad company based on safety records. In March 2005, explosion of BP’s refinery in Texas killed 15 deaths and injured 180 people. An investigation of the explosion by the U.S. Chemical Safety and Hazard Investigation Board blamed BP for the explosion. It found organizational and safety deficiencies at all levels of the BP Corporation and said management failures could be traced from Texas to London. The company pleaded guilty to violation of the Clean Air Act and was fined $50 million and sentenced to three years probation. Occupational Health and Safety Administration (OSHA) fined BP an additional of $87 million.
On the other hand, BP has also put some actions on environment matters. In 1997, BP withdrew from Global Climate Coalition, an industry organization established to promote global warming skepticism. BP Solar developed solar panel technology as alternative energy source. BP Solar spent $8 billion to research alternative methods of energy source. BP also sponsored of the Scripps Institution CO2 program to measure carbon dioxide levels in the atmosphere.
BP also found Energy Biosciences Institute, in collaboration with the University of California Berkeley, the Lawrence Berkeley National Laboratory, the University of Illinois at Urbana-Champaign. However, BP’s investment in green technologies is considered too small compared overall budget by stakeholders. This has made BP called as greenwashing, a deceptive use of green PR or green marketing to promote a misleading perception that BP’s activities are environmentally friendly.
The Accident of Deepwater Horizon Oil Spill
Deepwater Horizon was an ultra-deepwater, dynamically positioned, column-stabilized, semi-submersible mobile offshore drilling unit (MODU). Basically, it was a semi-submersible oil rig used to drill below deep water, which can be operated in water up to 2400 m deep to a maximum drill depth of 9100 m.It was owned by Transocean and under lease to BP from March 2008 to September 2013.
Previously, Deepwater Horizon succeeded to drill in Atlantis oil fields (Gulf of Mexico, 1998) and Thunder Horse oil fields (Gulf of Mexico, 1999).In 2006 it discovered oil in the Kaskida field and in 2009 the Tiber field. In February 2010, Deepwater Horizon resumed drilling operations in Macondo Prospect oil field, continued Marinara oil rig drilling operation which was halted on November 2009.
Macondo Prospect oil field is oil and gas prospect in Gulf of Mexico, off the coast of Louisiana. It is located on Mississippi Canyon Block 252 in the Gulf of Mexico in a water depth of 1522 meters. It may have held 50 million barrels producible reserves of oil. BP serves as the operator, holding a 65% interest in the prospect, Anadarko holds 25%, and MOEX 2007 holds the remaining 10%.
On April 20, 2010, an explosion on Deepwater Horizon was happened. The blowout was triggered by high pressured methane gas that escaped from the well and shot up the drill column, expanding quickly as it burst through several seals and barriers before exploding.Deepwater Horizon sank on 22 April 2010after36 hours burning. The remains of Deepwater Horizon were located resting on the seafloor approximately 1,500 m deep at that location, and about 400 m northwest of the well.
The precise cause of the Deepwater Horizon blowout is still unclear. However, BP representatives suggested that the Blowout Preventer could have suffered a hydraulic leak. Blowout Preventer (BOP) is a large, specialized valve used to seal, control and monitor oil and gas wells, which meant to be a fail-safe device. The blowout itself happened possibly because BP instructed to remove drilling mud from the drilling operation before it was capped. Heavy mud is commonly used to push the oil and gas down to prevent blowout.
U.S. Government has point on BP the responsible party, and officials have committed to hold the company accountable for all cleanup costs and other damage. BP agreed to use all resources to pay the cost of oil spill, spending $7 million a day to contain the disaster. In total, BP has agreed to create a $20 billion spill response fund. For the payments, BP plan cut its capital spending budget, sell $10 billion in assets, and drop its dividend.
Attempts to stop the leak
Several attempts was planned to stop the Deepwater Horizon Oil Spill. As a long term and permanent solution, BP planned to make relief wells that will intercept the existing wellbore. And then, heavy fluids and cement can be pumped down hole to kill the well. BP estimated this process will take at least 90 days and it needs other actions prior to this process to avoid worse consequences.
There were some attempts to be short term and temporary solution. Some of them failed. An attempt to activate BOP with remote operated vehicle (ROV) and put containment dome over the leak failed. The attempt called “top kill”, and “junk shot” methods also failed as well. The attempts were starting to get result when BP inserted a smaller pipe tube into the wide burst pipe. The small pipe diverted the flow into ships waiting on surface. On July 15, BP succeeded to shut off the pipes. It worked well and the leak had been stopped after all the blowout preventer valves had been closed on the newly-fitted cap.
To get more permanent result, on August 4, BP did static kill method to seal the oil flow by pumping heavy mud and cement through the BOP into the well. The heavy mud was pumped at a slow rate into the well-head until well was in a static condition To ensure the plug works well, relief wells will be connected into the well pouring of heavy fluids further.
Business Ethical Review
Deepwater Horizon oil spill was another case of BP’s worse business ethics practice. As seen in historical review, Deep Water Horizon accident case was one of many cases done by BP regarding its unethical way of doing business. Even though BP made bad reputation image and fined by government, it kept doing unethical business.
It was started at U.S. Government policies regarding oil company. BP and other oil companies always do a very intensive lobby to U.S. Government. These lobbies result many government policies give advantage to oil industries, including BP. As an example in this case, U.S. government gave permit to BP to drill in Macondo prospect without proper plan and complete environmental review. Without proper plan, this operation led to accidents and handled in relatively long period of time. Without complete environmental review, marine and wildlife habitats also related businesses had a great loss when the accident happened.
BP tried to cut cost and save time in exchange with lowering safety procedure. Mike Williams, an employee who saved during the accident, said that there were a series of mishaps weeks before the accident happened. BP’s manager pushed Transocean, the drilling contractor, to drill faster and therefore made the well’s bottom splited and became dangerous. BP also have detected BOP errors few weeks before the accident without repaired it. BP also instructed to remove heavy mud from the drilling operation to safe time, even though Transocean still recommended doing the operation in conservative but save way. From moral view, BP should do proper drilling procedure and when BOP equimpent had error, it should stop drilling and fixed BOP before continue even if the cost raised, but in reality BP just ignored them to cut cost and save times.
We can see BP cases in Deepwater Horizon accidents from shareholder and stakeholder theories perspectives. Both of them are theories about how corporate leaders deal in their business environment by each of their different perspectives, one is emphasizing to put priority on shareholders’ interests, the other is emphasizing to put priority on larger business stakeholders’ interests.
Even though shareholder and stakeholder theories shared different view of management conduct, BP violated both of them by conducting its way of business. Shareholders theory is introduced Milton Friedman reviewing social responsibilities of business:
There is one and only one social responsibility of business: to use its resources to engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.
As we can see from Friedman description, BP violated shareholders theory by conducting business with deception and fraud. Many conducts of BP’s business by deception and fraud led to the accidents. As the result, beside government punishment and BP’s massive obligation to pay the fines, stock market also punished BP as the company’s total value lost since nearly 52% in 50 days on the NYSE.
According to Edward Freeman, stakeholder theory is a theory of organizational management and business ethics that addresses morals and values in managing an organization. Stakeholders are individuals or groups that provide critical support to business firm. In this case, BP’s stakeholders are its shareholders, employees, contractors, customers, local community of Louisiana, and marine environment. The stakeholders get benefits and risks regarding their involvement with BP activities. According to stakeholder theory, business leaders’ duty is to balance the shareholders’ interests with other stakeholders’ interests.
BP violated stakeholder theory by conducting business without balancing the stakeholders’ interest, even endangered them. BP did not consider the stakeholders by pacing the drillling process even though it was a dangerous process and not repairing error BOP even though it knew weeks before the accident happened. BP tried to cut cost and save time even though the safety procedure was lowered.
This accident reminds us that ethical in doing business is still very important, even though profit is also important. There should be a balance for both of these. Without strong normative principles as BP’s foundation, it seem BP actions changed into short term and self interest actions leaving ethical considerations. If BP had the principles, it made good long term reputation and saved a lot of money.
Levi Strauss & Co. is an apparel company from US, built in 1850s by Mr. Levi Strauss. The company achieved early success producing and selling first jeans to miners who arrived during the gold rush. As apparel industry became more competitive with the faster syle change and fewer, though larger, retail customers, LS&CO reconceived itself from manufacturer to marketer. The company moved an increased portion of its production to contract manufacturers, most of them offshores, to cut cost.
LS&CO. was known for its long-standing commitment to employees and community. The company started Sourcing Guidelines Working Group (SGWG) in 1991 to determine standards for contractors worldwide. At the same times, more and more consumers based their purchasing decisions on ethical concerns.They are sensitive to goods being made under conditions that are not consistent with its values. SGWG developed into two parts, Business Partner Terms of Engagement and Guidelines for Country Selection.
To implement Business Partner Terms of Engagement, managements send autidt teams to inspects the facilities of all company’s contractors. They also put this requirement, beside traditional requirements such as price, quality, quota and delivery time. To implement Guidelines for Country Selection, the company required an assesment of every countries in which it did business, especially on countries suspected of being in violation.
In 1992, LS&CO. started China Policy Group (CPG) to asses China as their country selection. It consider whether LS&CO should continue sourcing and purchasing fabric in China and whether it should make direct investments in marketing and manufacturing ventures there. CPG leaders, consist of three top managements, recruits other nine others to join the group. This will give them relevant knowledge and a range of perspectives.
CPG started when many other companies rushing into China. Some competitors of jeans products started business and became popular in China. Meanwhile, LS&CO. made little business in China, no direct investment, only raw material and some items clothing product of sewing and laundry. The company’s Chinese contractors were doing well under Business Partner Terms of Engagement.
Nevertheless, China as a country still posed difficulties for business. Outmoded infrastructures and tariffs made difficult and high price logistics. Inflations and sharp rises in stock price and property values added costs of doing business. Companies were under pressure by government. Business laws and their inforcement lagged behind economic development. Corruption and bribery are standard practice. Protection of intelectual property is not recognized in communist ideology.
CPG also learned that China’s human rights record are among the worst in the world. Trials of dissidents, religious figures, and other political offenders violated China’s own legal principles, as well as international standard. Freedom of expression and associations were severely restricted. Prison labor was also still implemented.
After reviewing the facts, LS&CO. decided would stop doing business with any contractors in China owned by Central government or the military as soon as possible, not initiate business with new contractors, transfer work being done in China to other locations when cost and delivery considerations were not substantially different, and withdraw all remaining sewing and finishing work in an orderly way based in a plan to be developed by company’s sourcing organization.
Many reactions regarding this decision. Some gave positives reactions, some were dissapointed. Consumers are happy to buy products that do not exploit people and destroy the environment in some other part of the world. US Government praised company’s actions. As China government were cooler, “ten of thousands of foreign companies invest in China, also from the US. If some individual ones want to withdraw, please do. They are quite free to move in and out and they don’t need to make excuses.”
The kerosene to liquefied-petroleum-gas (LPG) conversion program was initiated by Indonesian government in 2006-2007. The program was intended to reduce the government’s energy subsidies by replacing household kerosene cooking fuel with LPG. PT. Pertamina (Persero) was appointed in charge for public service obligation (PSO) to do the conversion program for household. This conversion program succeeded seeing majority of Indonesian households have changed the usage of kerosene into LPG as cooking fuel within only 2 years. The problem came later from major usage of LPG. Some explosions of the 3 kg LPG in Indonesia happened, endangering many households as its major user.
Before the kerosene-LPG conversion program run, majority people in Indonesia used kerosene in their daily life, mostly, for cooking and lighting. In 2007, kerosene was a majority of subsidized fuel for household, reaching volume of 9.9 million kiloliters per year or value of 37 trillion rupiahs in 2007 . Since government subsidized only household kerosene for cooking, many industries substituted unsubsidized industry kerosene to the subsidized one. Big price gap between them made industry, unlawfully, use the subsidized one. World oil price increase in 2006-2007 made subsidy for kerosene raised unreasonably. This subsidy became burden as it is expensive for the government and eating up significant portions of the government budget.
On the other side, before the conversion program run LPG energy was not common for Indonesian people. It was used by only 10 percent of Indonesian household. Previously, smallest unit of 12 kg LPG canister was considered expensive relative to kerosene. When the program run, smaller unit of 3 kg LPG canister is introduced and subsidized by government.
The conversion program converted 10 million kiloliter of kerosene into 5 million kiloliter of LPG. This change made government saved 12 trillion rupiahs subsidy per year. Pertamina distributed conversion kits to households, comprising one 3-kilogram gas canister, a stove, a hose and a regulator. From 2007 until now, estimated 44,8 million conversion kits have been delivered and there will be total 52 million packages until the end of 2010.
Disaster Events
The problem started to happen in 2008, many 3 kg LPG canisters was starting to blast in many households until now. Gas leakage from the canister happens unnoticed and flows to kitchen with bad ventilation. The leakage makes gas accumulated and potentially flammable. When stove is switched on, LPG vapor blasts accidentally, makes people injury and burns down building structures.
Public Policy Study Center (PUSKEPI) recorded 189 accidents of LPG blasts from 2008 to 2010, 61 cases happened in 2008, 50 cases happened in 2009, and 78 cases happened in 2010. National Consumer Protection Agency (BPKN) version mentioned that as of the end of June there had been 95 explosions, 22 deaths, 131 people hospitalized for injuries and 55 houses damaged in gas explosions. The incidents mostly occurred in Jakarta, Greater Jakarta and West Java.
The Causes and Follow-ups
Investigation of LPG blast accidents found some leads that may caused the accidents. First suspect is that some parts of the LPG canister and accessories do not comply with Indonesian National Standard (SNI). National Standardization Agency of Indonesia (BSN) has put five SNI standards regarding LPG canister and its accessories. Pertamina subcontracted LPG canister production to many local manufacturers and imported the rest from other countries. All manufacturers should comply with SNI standards in manufacturing products. Hose, regulator, and rubber seal are vulnerable to LPG leakage and may lead to accidents. Therefore, these parts should be manufactured well and checked regularly. A study conducted by BPKN reveals that all hoses, two-thirds of the canister check valves, half of the stoves, 20 percent of the regulators and 7 percent of the canisters did not meet safety standards. Polda Metro Jaya has sealed one of LPG manufacturing companies in Tangerang which produced two hundred thousands of non-SNI LPG canisters which has below standard quality.
Second suspect is smuggled non-standard LPG canisters which do not comply with SNI. Currently, police has caught some LPG dealers because they sold fake and non-SNI LPG canister. Associations of Steel Canister Industry (ASITAB) pointed out there are 20 million non-SNI LPG canisters in the current market out of 80 million total quantities. Some trace found that the non-SNI LPG canisters are imported from China. Beside smuggled products have less quality and safety features, ASITAB also complained about aggressive pricing from these smuggled products.
Third, government and Pertamina failed educate and socialize how to use LPG as cooking fuel to public. Public education for using LPG is very important to prevent accident. Public needs training about few crucial actions as a precaution safety. How to check LPG canister from purchased first time how to install and check hose and regulator in regular basis are very important to prevent accident. According to Secretary of the Coordinating Minister for People’s Welfare, Indroyono Soesilo, LPG hose should be replaced once a year, but since no education from 2008, they have not been replaced them properly and made potential disaster each usage. Less knowledge of LPG users was used by Pertamina as an argument explaining the cause of many LPG blasts nowadays.
Fourth, rubber seal is broken because there are some crime practices of injecting LPG from subsidized 3 kg LPG to unsubsidized 12 kg canister. Price disparity is very high so that some companies illegally injecting 3 kg subsidized to 12 kg unsubsidized LPG canisters. Up to four 3 kg LPG canister cost only Rp 52.000 can be injected to one 12 kg LPG canisters cost Rp 75.000. Police has caught a company in Bantar Gebang injected 3 kg LPG to 12 kg LPG up to four thousands cycles per day and generating profit up to 4 billion rupiah per month.
Blasts of subsidized LPG in Indonesia have made a lot of victims and loss. Investigation has been held by government to find out the real problem with LPG conversion program. There are several steps done by government and Pertamina to settle this problem. Government has plans to withdraw 9 millions broken or non-SNI LPG canisters. As mentioned before, non-SNI canisters have larger risks for household cooking. In June, Pertamina started to gather fund for a compensation program for victims of the 3 kg canister explosions. Those who suffered permanent injury or the beneficiaries of dead victims received Rp 25 million.
Law and Enforcement
There are some point to be discussed from view of law and its enforcement. Government and Pertamina as its appointee in the LPG conversion program should be responsible for accidents involving LPG. Some laws are violated and potentially will have legal risks which will cause large financial and reputation loss.
Pertamina may get many civil suits regarding these series of accidents. Most significant one, Pertamina has violated the consumer law by endangering its consumers with life-threatening product. With hundreds of victims related to LPG accidents, there might be class action for this violation. Referring to UU no. 8/1999 about Consumer Protection Law, there is some consumer rights that violated by Pertamina, which are:
Article 4
(a) Right to get comfort, secure, safety in consuming products and/or services
(f) Right to get guidance and consumer education
(h) Right to obtain compensation, restitution and / or replacement, if the goods and/or services received are not in accordance with the agreement or not as properly;
Therefore, Pertamina should respond by immediately fulfill consumer right to prevent these legal actions. The most important and urgent one is to ensure withdrawal and replacement of the low quality canister done accordingly. It is also important and urgent to ensure all of the victims, injured or death, to get full treatment and compensation.
In longer term, Pertamina should conduct consumer guidance and education, considering LPG as potentially dangerous technology and subsidized LPG user which has low level education. LPG station, which has duty to distribute gas through its agents, should play as Pertamina educator and information provider to the public. Pertamina can ask help from government in term of budget and authority because government also has responsibility in these accidents.
Indonesian law might be sufficient to respond to LPG blast case, but government must be able to enforce it. Manufacturers, distributors and users who commit crimes and violations related to LPG blast accidents should be punished. One of the most important points is that LPG gas canister and its accessory products in the market should comply with SNI standards. There should be official sweeping to local market to see whether distributors provide product with SNI Standards. LPG hose and regulator as the most frequent problem should be checked carefully.
As many fake or smuggled LPG and related products came from abroad, customs should check more carefully in the point of entrance. ASITAB claim that 20 million out of 80 millions 3 kg LPG canister non-SNI in Indonesia should be verified. The information to distinguish whether LPG canisters and accessories original or not should be distributed to police and public. Any distributors sell fake or smuggled product are violated UU no.8/1999, “the right to correct information, clear and honest about the condition and security of goods and/or services” and therefore government should revoke its business permit and punish it according its violations.
As many crimes regarding injecting of subsidized 3kg LPG to unsubsidized 12 kg cannister, police should arrest the criminal actors. This actors can be treated in criminal articles in KUH Pidana. Mainly, the most potential party who commit this kind of crime is LPG agent in local area. As a prevention, local police and LPG station can cooperate together to conduct counseling to local agent regarding injecting subsidized LPG to unsubsidized one.
Conclusion
As a conclusion, LPG blast accidents happened because of current products of LPG canister and accessories do not comply with Indonesian National Standard (SNI), smuggled products fulfill the market, lack of education and information to consumers, and crime of injecting subsidized LPG into nonsubsidized cannister.
Pertamina has violated law by endangering consumers with life-threatening product. Therefore, Pertamina should respond by immediately fulfill consumer right to prevent these legal actions. Government as regulators should enforce the law related to this case. Product should be comply with SNI and fake or smuggled product should be forbidden. Government should prevent and punish actors and potential actors who will violate law and/or commit crimes regarding these LPG blast accidents.
In the article “The Social Responsibility of Business is to Increase its Profits”, Milton Friedman describe that he does not agree that business should take social responsibilities, in terms of responsible in desirable “social” interests. Believing in free-enterprise system, Friedman supports that the business should be concerned to its shareholders’ interest. He believes, only in socialist environment, business takes social responsibilities as its priority.
In free-enterprise, private-property system, a corporate executive is employee of the business owner, so that he/she has responsibility to fulfill his/her employers’ interests. That responsibility is to conduct business in accordance with their interests, which generally to make profit as many as possible while conforming to the basic rules of the society, both law and ethical custom. A corporate executive is also the fiduciary agent of business owners that run owners’ vision and mission.
A corporate executive is individual in his/her own right and responsibilities. As a free individual, he/she is free to choose roles in community and take social responsibility at own money, time, or other resources. But in his/her capacity as businessman, corporate executive should not act in some way that is not in employers’ interest, even though the actions are community’s interests.
In addition, exercising social responsibility is difficult, especially how to be proper in allocating employer’s resource and spend the proceeds for “social” purposes. The difficulty of exercising social responsibility shows advantage of private competitive enterprise. It forces people to be responsible for their own actions and makes it difficult for them to exploit other people for either selfish or unselfish purposes. They can do well at their own expense.
The bias using social responsibility harms the foundations of a free society. The political principle that underlies the market mechanism is unanimity. In an ideal free market resting on private property, no individual can coerce any other, all cooperation is voluntary, all parties to such cooperation benefit or they need not participate. There are no values, no “social” responsibilities in any sense other than the shared values and responsibilities of individuals. In contrary, the political principle that underlies the political mechanism is conformity. The individual must serve a more general social interest. The individual may have a vote and say in what is to be done, but if he is overruled, he must conform. It is appropriate for some to require others to contribute to a general social purpose whether they wish to or not.
Doctrine of social responsibility would extend the scope of the political mechanism to every human activity. Friedman describes social responsibility as a “fundamentally subversive doctrine” in a free society. He said that in such a society, “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
Shareholders theory and stakeholders theory are the two normative theories of business ethics and corporate social responsibility. Both of them are theories about how corporate leaders deal in their business environment by each of their different perspectives, one is emphasizing to put priority on shareholders’ interests, the other is emphasizing to put priority on larger business stakeholders’ interests. These different perspectives drive how executives and managers make business decisions.
Shareholders theory is introduced by Milton Friedman. In 1970, Friedman wrote in NY Times that “there is one and only one social responsibility of business: to use its resources to engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.” The idea of the shareholder theory is that managers primarily have a duty to maximize shareholders’ interests in the way that is still permitted by law or social values.
Stakeholder theory is introduced by Edward Freeman in 1988. Stakeholders is a group that is broader than shareholders. They are individuals or groups that provide critical support to business firm, such as shareholders, employees, suppliers, customers, local community, environment, even the world community. Therefore, they get benefits and risks regarding their involvement with the company. According to stakeholder theory, business leaders’ duty is to balance the shareholders’ interests with other stakeholders’ interests. In other word, stakeholder theory demands that interests of all stakeholders should be considered. It also shows the importance of social contracts, not just a business contracts.
There is debate between both theories supporters. With “maximizing shareholders’ interests” jargon, shareholder theory is frequently misunderstood as it allows executives and managers to do anything that can make profit. It should be remembered that shareholder theory obligates managers to increase profits only through legal, nondeceptive means. Therefore, this theory puts laws and ethics as control mechanism how company conducts business.
On the other hand, the stakeholder theory is also criticized by its opponents. They claims that the stakeholder theory does not put focus on profitability. Even though the ultimate objective of stakeholder theory is the concern’s continued existence, it must be achieved by balancing the interests of all stakeholders, including the shareholders, whose interests are in profits.
Both theories can be applied in daily business activities. Executives and managers should be clear about the choice of theory applied in internal and external corporate communications. If employees are confused about the corporation’s objectives, they will likely make inconsistent decisions which, at the end, will backfire to company itself. The clear choice will provide same ground to decide in daily business.
MBA Program Journey 