Managing Corporate Integrity, Essay Example

Introduction

The below paper will review the ethical business practices of Duke Energy, in the light of the recent Coal-Ash spill (Smith). The author would like to review ethical principles, business considerations, stakeholder impact, as well as the company’s internal policies related to preventing environmental damage. The main finding presented in the research essay below is that Duke Energy did not only suffer financial loss, due to being made to pay a fine for environmental damage, but the company’s reputation and share price was also affected by the company’s actions. Therefore, ethics within organizations should be taken seriously, and risk assessments need to be carried out in order to prevent causing harm for stakeholders.

Background Information

In February, 2014 Duke Energy released a high amount of sludge and waste (coal ash) into the Dan River, in N.C., Rockingham County,  consequently violating the Clean Water Act (1972). that consists of waste-water and pollution reduction programs, setting guidelines and regulatory standards for different industries (EPA). The company was found guilty in nine misdemeanor violations (Smith), and was ordered to pay compensation. The leadership of Duke Energy agreed to pay $102.2 million for the damages caused. However, it is important to note that the coal ash spill at Dan river was not an isolated incident. According to Smith, four other plant locations of the company were also found to be dangerous. As the CEO of the company confirmed after the settlement agreement, the company took responsibility for its actions, and is intending to implement safety and risk assessment guidelines in order to avoid future incidents (Smith).

While it is clear that the environmental damage could have been avoided, provided that adequate guidelines and policies are in place at Duke Energy, it is likely that the leadership of the firm ignored warnings of specialist assessors, dating back as early as 2009. The final Ccw Impoundments Inspection Report (Paul C. Rizzo Associates, Inc.) recommended that the company performs a stability study ASAP. Further, the report also contained a photo of a surface drainage outfall between the pond and the plant (Paul C. Rizzo Associates, Inc., 29), which highlighted the problems with drainage and waste management. The Clean Water Act of 1972, amended in 2002 states that “it is the national policy that the discharge of toxic pollutants in toxic amounts be prohibited” (Clean Water Act, SEC. 101.3), therefore, the company did not comply with the law, and committed an offense.

According to the 2014 document published by the company, after discovering the incident, “Duke Energy removed ash from three locations in the river and also cleaned filters at the two nearest downstream water treatment plants” (Duke Energy). However, this action does not make the pollution less serious.

Related Company Policies

The company states that before the incident the engineers were already working on closing three ash basins near Dan River (Duke Energy). After the incident, the management decided to close all the basins near the plant. However, the company’s statement is not clear about the ethical principles and the corporate decision’s background, stating that Duke Energy is “committed to closing ash basins in a way that’s timely and environmentally sound”.

Ethical Considerations

Based on the Greenpeace report on the incident (Greenpeace, 2014), there are several ethical issues related to the spill and its environmental impact. The authors of the summary ask some important questions, listed below:

• Why did Duke not notify the public immediately of the potential contamination of the drinking water
• Was Duke aware of the potential risks of stormwater pipes?
• What is Duke planning to do about other plants potentially affecting the drinking water of thousands of people?

The Sustainability Report of Duke Energy (2014) states that the company was planning to review the coal ash management practices and close as many basins as possible to reduce risks. At the same time, in 2014, the dangerous basins were still open, and caused environmental damage. Further, the company has also aimed for achieving the top quartile rating of y Bloomberg Environmental, Social and Governance (ESG) Disclosure Scores. Further, the company has committed itself to addressing the Dan River spill (Duke Energy), and created an internal engineering team to make the company’s ash management practices safer. As the company states: “We continue to place the safe operation of our ash basins as one of our highest priorities” (Duke Energy, 14).

One of the main questions arising from the above review of the company’s statements and the background information is whether or not the leadership of Duke Energy was aware of the risks, and what was their main priority when operating the plant. In this case, it is likely that profitability and cost-effective operation had a higher priority than the implementation of risk-assessment guidelines. Indeed, as the reports confirm, the company was making commitments to close down the basins, and had been warned about the risks by external auditors years before the incident. This means that the management faced an ethical dilemma: increasing the yearly budget and speeding up the closure of the ash basins, or taking the risk and maintaining low cost operation, implementing the closure plan gradually. As the facts related to the incident indicate, the company did not fulfill its commitment to the environment and communities living in the area, and risked the safety of thousands of people’s drinking water.

Actions Taken to Reduce Risks and Repair Damage

Duke Energy has made a commitment to reduce the impact of the coal ash spillage on the environment, and spent a substantial amount of money on removing hazardous materials from the river. According to Smith, the company is now working with officials from the EPA to reduce the risks related to the operation of coal plants, and waste sites. However, there is no indication whether or not the company is making changes to its employee training practices, and whether or not it would implement a new Code of Ethics. Indeed, based on the Environmental Impact Report (Duke Energy SR, 20), the CO2 emissions of energy generation in the United States increased from 2012 to 2013, and the company consumed more water in 2013 than in 2012. Further, the company had 65 reportable oil spills in 2013, compared with 48 in 2012.

Business Integrity and Consequences of Actions

According to Freeman et al. (6), there are several barriers to conversation within large organizations when it comes to green practices. These will be reviewed below in order to determine which one applies to Duke Energy’s governance, and how it impacts the ethical business practices of the company.

The regulatory mindset, mentioned by the authors (Freeman et al.) looks at the relationship between the company and the environment as controlled by regulators. This mindset pays little attention to ethical issues, and assumes that doing what the legislators say is enough. There are no voluntary environmental protection initiatives present in the company. As the authors (Freeman et al., 7) confirm: “regulation lags the discovery of real problems, and regulation inevitably entails unforeseen consequences”. Therefore, if there are no ethical principles built in the culture of the organization, compliant companies can still cause damage for the environment and communities. In the case of Duke Energy, it is clearly visible that the mission statement does not include green initiatives. While one of the Visions of the company (Duke Energy) is “Safety– We put safety first in all we do”, this value is not represented in the practices of the organization. Visions should be shared across every level of the company, in order to be represented in every aspect of operation.  The Code of Business Ethics of Duke Energy states that “Each of us must be committed to continuous safety improvement and to eliminating occupational health, safety and environmental hazards”, however, the spill of 2014 does not confirm this statement. This indicates that either the company does not provide enough training for employees, or is unable to gain commitment from workers to share the ethical principles above.

The Cost/Benefit mindset, on the other hand, prioritizes operation expenses reduction over environmental protection. It is also possible that in the case of Duke Energy, the company decided to phase out the closure of the ash basins over a long period of time, knowing that they imposed risks, in order to maintain the company’s smooth and cost-effective operation, as well as the profit margin. Provided that the above statement is true, the leadership did not follow ethical principles, and knowingly risked the safety of drinking water.

The constraint mindset, also mentioned by Freeman et al. (8) is another barrier to acting responsibly. Based on the assumptions of this mindset, the business simply operates to create economic value, and it does not have any other responsibilities. From the review of Duke Energy’s principles and initiatives, as well as the sustainability report, it is evident that the company is trying to make its operation more sustainable. Therefore, it is likely that the leadership has faced issues with execution and planning. Dalal-Clayton and Bass (31), the main challenges of environmental mainstreaming are: lack of willingness for change, lack of information, skills, and resources, and the mindset to view the environment as an “economic externality”. This means that while the company might have strong commitment to the environment, it is unable to create policies, guidelines, and risk assessment methods to eliminate the possibility of negative environmental impact.

As the 2014 annual report of the company (Duke Energy, 15) states, one of the risk factors is that “The Dan River ash basin release could impact the reputation and financial condition of the Duke Energy Registrants”. This implies that the company did not only endanger the reputation of the firm, but also the financial stability of the company, and endangered the earnings of investors. Therefore, corporate social responsibility and integrity should be in the focus of the company’s governance strategy in the future, with particular focus on creating shared values and gaining commitment, developing a sustainability and risk management plan in order to avoid further loss of reputation and stability.

Conclusion

As a conclusion, Duke Energy has some ethical codes and principles that relate to the protection of the environment, however, they are not clearly represented in the results published in the Sustainability Report and the compliance record of the company. Indeed, by breaking the law by not complying with the EPA’s Clean Water Act, the company did not act responsibly, and endangered the safety of drinking water, as well as the environment. The above study has also highlighted that the actions and corporate decisions of the company are not likely with the proclaimed vision. It is likely that the company’s ethical principles and values are not embedded in the employee training and governance policies, therefore, there is a need for change.

In the future, according to the analysis of Dalal-Clayton and Bass (31), Duke Energy should engage in a closer collaboration with government authorities and researchers, address various issues, complete environmental impact studies, work on highlighting and addressing internal and external policy issues, and implement the ethical values of the organization in everyday practices through gaining employee commitment. The main factors that would determine the success of environmental mainstreaming are: setting clear, easy to measure goals, assessing the interest of different stakeholders, and determining the drivers of change (Dalal-Clayton and Bass, 33). While repairing the damage caused by the spill is one of the main environmental corporate priorities of Duke Energy, the company’s leadership should focus on ensuring that training and support is provided within the organization for all employees in order to create strong, shared values and knowledge that can lead to Duke becoming a responsible energy company that considers the interest of all stakeholders.

Works Cited

Dalal-Clayton, Barry, and Steve Bass. “The challenges of environmental mainstreaming.” Issues Paper, International Institute for Environment and Development (available at www. environmental-mainstreaming. org) (2009).

Duke Energy. “2014 Annual Report And Form 10-K” 2014. Web.

Duke Energy. “Code of Business Ethics” 2012. Web.

Duke Energy. “Our Mission, Our Values”. n.d. Web.

Duke Energy. “Sustainability Report 2014”. 2014. Web.

Duke Energy. “Dan River Coal Ash Release” October 2014. Web.

Environmental Protection Agency. Clean Water Act. 1977. Web.

Freeman, Edward, J. York, and Lisa Stewart. “Environment, ethics, and   business.” Charlottesville, Virginia: Business Roundtable Institute for Corporate Ethics (2008).

Greenpeace. “Photos, Video: Duke Energy Pond Still Leaking Toxic Coal Ash Into NC’s Dan River After 48 Hours”. 2014. Web.

Paul C. Rizzo Associates, Inc. “CCW Impoundments Inspection Report Dan River Steam Station Rockingham County, North Carolina” 2009. Web.

Smith, R. “Duke Energy Agrees to Pay $102.2 Million for Coal-Ash Spill. U.S. government charges company violated Clean Water Act” The Wall Street Journal. 2015. Web.