Management Ethics in Singapore’s Oil Industry Essay

Management Ethics in Singapore’s Oil Industry

 

 

Social responsibility is a new buzz phrase that people are applying in many different situations.  One application involves business and its responsibility to the public and to society in general.  Lately, more and more people are demanding that business take a greater role in facilitating positive change in society.  However, others are not so sure that this particular responsibility should fall on the shoulders of business.  The viewpoints range from the most narrow, which argues that businesses have only a responsibility to their shareholders, to the most broad, which argues that businesses not only have the right to do no harm but to also act as catalysts for positive social change.

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Espousing the narrowest viewpoint is Nobel Laureate Milton Friedman.  His opinion is that business has one responsibility, that being to itself and its shareholders.  Business role, according to Friedman, is to maximize profit within the scope of applicable law (Friedman, 1970).  This viewpoint earned him much criticism as an apologist for the actions of businessmen whom he calls “schizophrenic” (Friedman, 1998).  He maintains that  businessmen tend to, on one hand, look far into the future  when it comes to their own personal interests, but to lose that ability when they emerge into the public sphere.   He gives the example of American protectionist policies concerning the steel industry and argues that these policies of tariffs and duties on steel imports have not helped the American steel industry in the slightest.

Another example includes privatizing American schools to increase competition and therefore, in his opinion, quality (Friedman, 1995).  His, and others who are of the same ideology, feel that competition in a free system provide for the greatest amount of profit. This profit is the company’s main responsibility.

Undoubtedly, this type of competition will affect the quality of the products, guard against overly high prices  and serve to nurture an increase in product development.   In this regard, by pursuing this profit schema, the business is truly benefiting all of society.   However, another school of though broadens this economic theory to include the concepts of negative and affirmative duties.  These duties have been an integral part of the formation of societal justice theories for hundreds of years.  Basically, a negative duty is one that a person has to NOT do something considered negative.  A positive duty, then, is one that a person has to DO something that is considered positive.  A negative duty is  considered more vital because it seeks to avoid hurt toward someone or something while a positive duty is a noble gesture to be helpful or generous (Lalor, 1899).

Modern theorists who follow this  principle claim that doing no harm (such as in the Hippocratic Oath) is of more importance that doing good deeds.  A business first priority then would be to avoid harm in the pursuit of profit.  In modern times, this distinction has become important in liability suits in which a determination must be made as to who is at fault for some type of malfunction of a product or negative consequences of a service. This has led to the definition of that vague line that falls between minimum compliance and maximum effort (Corporate Governance, 2006).

Basically this ideology derives from Immanuel Kant.  His first example of moral duty is that of follow orders that are imposed by others. In this way, he seems to be mirroring the first level of ethics which says that businesses must only follow laws and regulations while attempting to maximize profits.  However, Kant goes on to describe a second duty as following orders that we impose on ourselves.  This is more of a moral duty.   To avoid the problems of ambiguity, Kant reasons that what if fair for one is fair for all. Thus,  in order for a duty to be moral, it must be unconditionally applied to all.  This is known as Kant’s categorical imperative (Hinman, 2001).

Others would disagree.  He would contend that a condition can never be applied and that the situations are supremely important in making ethical decisions.  The common example concerns stealing food.  If a person steals food just because he doesn’t want to pay or has forgotten his wallet, he is morally wrong.  If a person steals food to feed his starving child, he is not morally wrong by situational ethics supporters.  Kant, however, would find both individuals morally wrong, but also find a conflict of duties.

Utilitarian followers would decide upon the ethics of the situation based upon how many people it affected.  The greatest good or happiness for the greatest number is the philosophy of the utilitarian.  Unfortunately, utilitarianism, which is based on a  type of majority rule, always implies a minority and, further, the oppression of that minority.

Finally, a third ideological position is that business should endeavor not only to earn profits and avoid harming others, but also to enhance societal welfare and even work to solve social problems. This involves a greater role of the business management in recognition and acceptance of the consequences of each decision and action of the business on the overall well being of the society and even globe.  Mallen Baker describes this idea as a necessity now that so many companies are global players.  This takes them out of the realm of local regulations into a generally unknown area of global regulations.  This is why, he explains, it is vital to look to multinational corporations when establishing leaders in this area of business and management ethics (Baker, 2006).

He is not alone.  The organization Businesses for Social Responsibility (BSR) was formed to allow businesses to collaborate on projects of social importance.  They cite a study of 20,000 customers from twenty countries who responded to a 2001 study.  Two-thirds of these customers believe that government should do more than simple make a profit, follow laws and pay taxes.  In addition, businesses need to acknowledge the challenge that more activist groups pose as they attack corporations of perceived social irresponsibility and even stage protests and pickets which can damage the reputation of the business (Business Ethics, 2006).

Friedman and others would  argue that imposing this type of responsibility upon a business is unfair.  He contends that a business is not an entity that can actually make a decision; people make decisions.  Asking one individual, the CEO or the President for example, to speak for the rest of the people is not a responsibility of business (Friedman, 1970).

One country that has shown continual growth and that can be used as an example for management ethics models is Singapore.  Singapore’s economy has grown an average of 8.5% each year from 1960 to 1995.  This growth was joined by a  rise in property prices over the last five years which, in turn, fueled the real estate and oil industries.  As per capita spending rose, so did the demand for fuel to fund travel and the new construction and operation of homes and businesses (Wong and Lin, 1996).

Singapore’s oil industry is one of the most advanced and important in the region. It imports crude oil from oil-producing countries and then refines it for further export.  In doing this, value is added to the oil, creating a profit for the exporting country.  Singapore currently ranks third in the world in the oil refining industry. Four oil refineries are located in Singapore. The Shell refinery is in Pulau Bukom;  Esso is in Pulau Ayer Chawan; Mobil is in Jurong;  and BP is in Pasir Panjang (Singapore’s Industry, 1999).

Even though Singapore does not have any oil fields itself, it has one of the three global hubs for oil and gas equipment manufacturing.  In addition, Singapore is now in a position to build up the local infrastructure and to produce oil and gas equipment.  This equipment is supplied to major oil producing countries around the world.  This industry generated $1.3 billion in 2004.  Despite not having any oil or gas fields, Singapore is one of three global hubs in O&G equipment manufacturing, besides Houston in the US and Aberdeen in Scotland (Wee, 2006).

Along with the successes of the oil industry come responsibilities, according to ethics theorists. For example, oil drilling frequently causes environmental concerns.  For example, Singapore Petroleum Company (SPC) and its partners have begun drilling the Lukah-1X exploration well, located in the southern block of the Kakap PSC which is located in the West Natuna Seas of Indonesia, approximately 2.4 kilometers southeast of the oil producing KG field.  The well should be drilled to a depth of 2,243 meters subsea over a 30 day period.  Currently seven producing oil and gas fields are operating in South Kakap. SPC owns 15% of Kakap PSC through its subsidiary, SPC Kakap Ltd  (SPC and Partners Begin Drilling Lukah Exploration Well, 2006).

One political issue involved in Singaporean industry concerns foreign labor.    The number of foreign workers in Singapore increased from1990 to 1997 rapidly to compensate for a shortage of labor there.  Foreign workers make 27% of the labor force, mostly the unskilled labor force (Bureau of East Asian and Pacific Affairs, 2005).  Many of these workers are from neighboring countries, such as Thailand.  Foreign workers in Singapore are given what is termed as “adequate protection under local laws” concerning safety, health and compensation for injuries (Ofori, 2000).  However, it seems that Singapore’s oil industry might have more of a duty to keep its employees safe.

Clearly, the oil industry in Singapore has a way to go before it achieves the type of status that those buying into the social responsibility theories think it should have.  At this point, the industry should evaluate itself on all three levels of ethical behavior in business and in management.  First, it should examine its profits and the extent to which it is following the laws of Singapore.  The industry seems to have achieved this level.   As previous mentioned, the oil industry pulls in billions of dollars.  However, work needs to be done in the second and third tiers of the management ethics ideological framework.

Singaporean offshore oil drilling such as that in the Kapak is dangerous both personally and environmentally.  Pressures to drill in fragile ecosystems have been felt all over the world and been opposed all over the world as well.  Conservationists fear that the priceless natural coastlines and species will be threatened with a possible spill or accident.  Other issues which could pose a danger environmentally seismic activity in the region (Sadoway, 1998).   The oil industry has an ethical dilemma here.  Do they continue to drill offshore and risk endangering the environment or do they forgo some of the profits to study the area and assess the risk first?

In addition to the dangers during exploration rig damage, oil spills during transfer and production, tanker and ship collisions can result in worker injuries and death.  Singapore’s death rate in the workplace is currently 4.9 per 100,000 workers per year; this figure nearly doubles the 2.5 average reported in European Union countries (Deaths at Singapore Worksites up this Year, 2006). There are several reasons for this high incident rate.  First, few Singaporeans want the jobs, preferring more comfortable and better paying options. This causes the companies to seek employees outside of the country’s own borders.  In fact, foreign workers make up 75.3% of the workforce (Ofori, 2000).

A solution to address both the shortage of workers and the low productivity and construction woes is to upgrade the skill levels of personnel through training and testing. Politically, Singapore is not generally welcoming to foreign workers.  At present, Singapore’s government only allows foreign workers on short term work permits (Ofori, 2000).  If the crisis in labor endures, it may have to extend those in order to keep the experience level high and the injury levels down.  Instead of considering the influx of workers as a problem, Singapore should make sure they are adequately trained until residents of Singapore can be convinced to take the jobs through pay incentives or other means.  This low quality and lack of experienced workers lead to the injuries that the oil industry has an obligation to prevent.

One five-year goal should be the implementation of guidelines and standards by which the quality of a worker can be measured. Experts have begun to create a series of steps regarding safety issues that include constant reviews of the industry and to pass laws that keep up with changes in the industry (Deaths at Singapore Worksites up this Year, 2006).

Creating a plan to address social problems will be the most difficult for the industry in Singapore.  One problem across the board is that of fraud.  Fraud in business is a huge problem in the country.  Part of this problem is that it is often intentionally overlooked by management in favor of maintaining profit, time deadlines, or even the reputation of the company.  The resulting suspicion and lower morale, however, makes this a dubious trade,  The industry, then, can be said to have an obligation to increase the public’s opinion of the industry with regards not only to safety and political issues, but also with regard to its overall reputation (Morgan, Lechner and Helsby, 2004).

One way to achieve this is to use the developing information technology in the construction industry.  If the industry utilizes information technology systems as it should,  in the next five years it should see benefits in inventory control, transportation logistics and, most importantly, accuracy of financial records.  Unfortunately, IT systems can increase the potential for cyber crime.  While several international agreements exist now to combat this, Singapore will have to actively join these ranks.  Legislation, coupled with “an ongoing drive towards greater transparency and accountability in the industry” are necessary as preventative measures (Morgan, Lechner and Helsby, 2004).

In addition to regulatory measures and incentive programs, all of which carry either a threat of punishment or promise of financial reward, some purely humanitarian organizations have arisen in the construction industry in Singapore.  These truly meet the intent of the third level of business and management ethics which seeks to selflessly (as much as possible, of course) right the social ills of society.

However, tackling social problems does not have to be the sole responsibility of humanitarian clubs and organizations.  Luckily a sector of business is recognizing this call.  Because the demand for sustainability in the face of decreasing funds is become a problem in and of itself, Social Entrepreneurship (SE) has emerged as a way to deal with social needs.  This organization helps businesses maximize profits while at the same time tackling social problems that may be out of the sphere of government.  This initiative, therefore, is funded primarily by the public sector.  The rationale is that society benefits from businesses that engage in projects and activities that address social concerns.  As a result, society responds by utilizing these businesses.  It is a union of all three of the management ethics tiers (Social Entrepreneurship, 2006).

SE sets up a business plan for each business which must have a social objective.  Other than the plan can be for profit or not for profit, as long as it is ethical.  Samples include setting up centers for emotionally handicapped, physically disabled, or other at-risk individuals.  These people might make some type of craft to sell, the profit of which would go back to the business.  SE aids in the development and implementation of these plans (Social Entrepreneurship, 2006).

Clearly the development of an ethical plan in Singapore’s oil industry will take time and patience.  However, all three levels of ethical development are certainly within reach. The industry has proven that it can make a product for its shareholders, and it is working toward preventing injury and harm to its employees and to its reputation in general.  Finally, organizations are arising that can help identify social issues within the sphere of the industries influence.  By 2010, the Singapore oil industry will have enhanced these developments by training all employees and integrated those that are foreign into Singaporean society.  It will continue to create incentive plans for safe business practices and set up programs and activities that meet social needs.

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