ACC 6300 - The Exxon Valdez

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The Exxon Valdez : 

The Exxon Valdez Presented By: Chad Kern ACC 6300 – Seminar in Accounting Ethics University of Houston - Victoria

The Exxon Valdez - Overview : 

The Exxon Valdez - Overview Image Source: http://www.exxon.com/USA-English/gFM/home_Contact_Us/homepage.asp

The Exxon Valdez – Overview : 

The Exxon Valdez – Overview March 24, 1989: Exxon’s super tanker called the Exxon Valdez ran aground on Bligh Reef in Alaska’s Prince William Sound. The effects: 11 million gallons of crude oil spilled Ecological systems damaged Area residents lives were drastically effected

Overview (cont’) : 

Overview (cont’) How did it happen? The Valdez maneuvered out of normal ship lanes. A correcting turn was not made. A submerged reef grounded the ship. Significant question: Why was the correcting turn forgotten or missed?

Overview (cont’) : 

Overview (cont’) Who was responsible? Pilot - Gregory Cousins - was not properly licensed. Captain - Joseph Hazelwood - was in his quarters not monitoring closely if at all. Hazelwood was intoxicated and had a history of being intoxicated while operating even his automobile! Driver’s license was suspended at the time of this case.

Overview (cont’) : 

Overview (cont’) Other factors involved in Valdez grounding: The ship lanes were strictly labeled as safe. Tanker travel was deemed safe inside the lanes. Ships routinely exited normal ship lanes due to iceberg “pieces” in them. Significant question: Why exit lanes if they were deemed safe by authorities?

Overview (cont’) : 

Overview (cont’) Cost Guard did not guard. Cost Guard had no one officially watching on shore. Coast Guard radar system was lacking. Upgrade to radar system was deemed as too expensive. Lax coast guarding – radar man took a coffee break.

Overview (cont’) : 

Overview (cont’) Coast Guard cut corners. Harbor pilots were reduced. Tug boats were nixed. Rules were in place but not followed and not enforced. Significant question: Where were the Coast Guard executives?

Overview (cont’) : 

Overview (cont’) Clean-up response also insufficent. Alyeska, the group responsible for clean-up, was unprepared. Clean-up crew had no instructions. Barge in repair. Equipment missing and buried in warehouse. Necessary supplies missing. Image Source: http://response.restoration.noaa.gov/gallery_gallery.php?RECORD_KEY(gallery_index)=joinphotogal_id,gallery_id,photo_id&joinphotogal_id(gallery_index)=171&gallery_id(gallery_index)=12&photo_id(gallery_index)=106

Overview (cont’) : 

Overview (cont’) Alyeska late – very late. Took 12 hours to get to Valdez site. Only picked up 3,000 barrels of oil. Vastly outperformed by “Mosquito Fleet” fishermen.

Overview (cont’) : 

Overview (cont’) Exxon, Federal and State agencies response: Federal law declared responsibility for clean-up was all Exxon’s. Scientific advice provided by various federal agencies. Process was “paralyzed” due to lack of established procedures and guidelines, and absence of unified, designated leadership.

Overview (cont’) : 

Overview (cont’) Clean-up was a disaster in itself. Exxon wanted to use chemicals that might have been more environmentally poisoning than the oil. Coast Guard’s tests on Exxon’s chemicals were null. Oil “mousse was created by inclement weather before chemicals could be applied. Image Source: http://response.restoration.noaa.gov/gallery_gallery.php?RECORD_KEY(gallery_index)=joinphotogal_id,gallery_id,photo_id&joinphotogal_id(gallery_index)=171&gallery_id(gallery_index)=12&photo_id(gallery_index)=106

Overview (cont’) : 

Overview (cont’) Public Obviously Upset. Demanded a complete and thorough clean-up. Resulting Consequences: Cost to Exxon was $2 billion in 1989. Cost to Exxon was $200 million in 1990. 150 civil lawsuits resulted, not counting state and federal government-related ones.

Overview (cont’) : 

Overview (cont’) More Resulting Consequences: Exxon’s stock price fell, drastically. Pressure was placed on the company to accept The Valdez Principles. Please see page 416 of textbook for complete listing of The Valdez Principles. Company resisted acceptance of The Valdez Principles on the following assertions: Not developed enough. Went too far. Further study needed.

Overview (cont’) : 

Overview (cont’) Exxon did take these steps: Outside environmentalist made a part of the Company’s Board. Designated a senior officer as head of environmental matters. Valdez Renamed Now called the Exxon Mediterranean. Operates in the Pacific Ocean. Not outfitted with a double hull; too expensive per Exxon.

Unethical or Unmoral Behavior : 

Unethical or Unmoral Behavior Exxon – Why did the spill happen in the first place? Spill should have been prevented. Why was Hazelwood allowed to captain with his intoxication history? Why was an improperly licensed pilot behind the wheel? Why exit “guaranteed as safe” ship travel lanes?

Unethical or Unmoral Behavior (cont’) : 

Unethical or Unmoral Behavior (cont’) Coast Guard Oversight and/or “guarding” was not taking place appropriately. No one at proper stations. On shore watchperson missing. Radar “attendant” only paying attention to coffee. Harbor pilots nonexistent. Tugboat escorts not in place. Rules in place but not enforced or followed.

Unethical or Unmoral Behavior (cont’) : 

Unethical or Unmoral Behavior (cont’) Alyeska Unprepared crews with no instructions on clean-up process. Materials, supplies, and equipment necessary was missing and/or buried in a warehouse or under snow. Outperformed by a bunch of “rookies” – fishermen with 5-gallon buckets.

Unethical or Unmoral Behavior (cont’) : 

Unethical or Unmoral Behavior (cont’) Federal and State Agencies No established procedures or rules for organizing and/or managing the clean-up process. Organization lacking. Unification of leadership lacking. Authority struggle. “Paralyzed” effort was the result.

What Key People Should Have Done : 

What Key People Should Have Done Exxon should have: Established a code of ethical conduct. The Valdez Principles are a great start – be willing to modify and/or study them at the very least! Enforced code of conduct in manner that would protect negligent actions by employees. Disallowed improperly licensed pilot, Cousins, from being on board. Suspended Captain Hazelwood for irresponsible act that resulted in suspension of his driver’s license.

What Key People Should Have Done (cont’) : 

What Key People Should Have Done (cont’) Coast Guard should have: Enforced code of ethical conduct and rules that were already in place. Installed “enforcement procedures” for ensuring guards remain alert and present at stations. More carefully analyzed the need for harbor pilots and escorting tug boats.

What Key People Should Have Done (cont’) : 

What Key People Should Have Done (cont’) Alyeska should have: Established and enforced a code of ethical conduct (just as Exxon and Coast Guard should have). Established rules and procedures for remaining “on alert” and ready to urgently reach an oil spill site. Organized tools, materials, and supplies and should have known exactly of their whereabouts at all times. Properly trained all clean-up crew members on the exact actions that should be taken in the event of an oil spill.

What Key People Should Have Done (cont’) : 

What Key People Should Have Done (cont’) Federal and State agencies should have: Established rules and procedures for the organization of clean-up processes. Designated leadership in oversight of clean-up processes. Appropriately trained staff persons so that efforts were unified, effective, and non-hesitant.

Conclusion : 

Conclusion Courage of Ethical Conviction Courage to act ethically and to run organizations in an ethical manner was missing. Occurrences of this case demonstrate the professional, social, and financial consequences of mismanaging risks and an ethical code of conduct in general.

Conclusion (cont’) : 

Conclusion (cont’) Courage of Ethical Conviction Risks were present all around the aforementioned organizations, why were they not recognized, realized, and managed in a way that would have reduced them? Codes of ethical conduct are a must. Do not run an organization, business, or career without one!

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