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This case study is about how Total Company used legitimacy theory to fix its problems that emanated from negative publicity as a result of two major environmental disasters. These disasters include sinking of Erika tanker which caused significant damages as a result of massive spillage of oil in Bretagne, France, and the AZF chemical plant disaster which took place in Toulouse, France. Considering that this company has presence all over the world and operates in an environmentally hazardous industry, it is exposed to social and ethical controversies. The case is about assessment of the strategies that were put in place by Total Company in a bid to downplay and rescue its performance on environment, together with other actions associated with these scenarios.
The case is based on theory of legitimacy which is derived from social contract between the society and organizations. The results of the case study demonstrates how Total Company applied communication strategies to portray its activities as legitimate in the eyes of the public, in addition to supporting the idea of environmental and social disclosures as strong authenticity tools instead of commitment towards accountability itself (Scott, et al. 2000).
The recent accounts of social contract theory shows that society and individuals liberties as well as groups rights are based on mutually beneficial contracts which members of the society build amongst themselves (Rawls, 1999). Shocker and Sethi (1973) proposed that any social organization, whether implied or expressed, does its activities in the society through social contract. In this regard, growth and survival of such an organization is generally dependent on delivery of some socially wanted results to the community, and the delivery of political, social and economic assistance to those parties from which it draws its powers. Shockrer and Sethi (1973) added that, in a vibrant society, both the needs for the organizations services and its origin of organizational power are subject to changes overtime.
Legitimacy theory provides that companies must relentlessly appear to operate according to the wishes of the society. This means that companies must aim at portraying a legitimate image to the outside world (Deegan, 2000). Lindbolm (1994) describes legitimacy as a situation which takes place when the value system for an organization is going hand in hand with the value system of the extended social system upon which the organization is part and parcel. The organisations legitimacy threat is probable whenever there are potential or actual discrepancies between two value systems.
Erika and AZF Toulouse
Total Oil Company was taken to court; following allegations that it was responsible for the 1999 oil disaster which involved breaking up of an oil tanker, off the coast of France (International Oil Pollution Compensation Funds, 2006). The tragedy caused death of hundreds of thousands of birds and a disappointing economic cost. In 2001, Total was examined by the judiciary and slapped with a massive $6.8 million, in addition to being barred from transporting oil using very old ships (The Oil Daily, 2001a). Total resulted to application of all manner of judicial remedies to salvage the situation, but only managed to put off the financial ruling and case trial for a number of years. Following this disaster, Total made an effort of seeking judicial redress in order to reduce its accountability and responsibility for the harsh environmental, social and financial effects occasioned by the shipwreck (Suchman, 1995). The key issue that surrounded this crisis was whether Total was accountable for the poor condition of the Erinka vessel. In a strong defense, the company argued that it had legitimately used the vessel, and that it had acted in good faith (The Calgary Herald, 2007). A lawyer who spearheaded the Totals defense argued that Total was not responsible for the disaster since there was a hidden fault in the vessel because it had rusted on its underneath. Elsewhere, the captain of the ship argued that the rescue operators and the Italian owner had not acted on time. Apparently, the defense team was hell bent on passing the blame to other parties.
Later in 2001, another disaster which was referred to as AZF Toulouse killed 31 people and left thousands of others injured (United Nations Environment Program, 2006). Thousands of homes and offices were damaged, and many institutions destabilized. Just like the Erinka incident, the company attempted to use judicial remedies to shield itself from responsibility and accountability of the massive damage (Powell and DiMaggio, 1991). The conclusion that the incident resulted from mishandling of products, as the corroboration evidence had alleged, could have been extremely detrimental for the company as it could have resulted in full accountability of the damages (Ruef and Scott, 1998). Therefore, Total attempted to link the disaster to a planned terrorist attack of September 11, 2001. It was interesting to note that these allegations were only directed to the media and never discussed in any official meeting. Just like the reaction to the Erika incident, Total sought legal action (Gilchrist, 1998).
Analysis of Erika and AZF Toulouse
The data obtained from interviews, annual reports, CSR reports, websites and internal press release demonstrated how Total applied legitimacy theory to salvage the situation (Total, 2006). Total did not indicate any key environmental concern in relation to its policies between 1996 and 1998. Instead, the company seemed to undertake its normal operations, focusing on profits maximization. Furthermore, analysis of 1996 to 1998 annual reports chairmans messages revealed no sign of environmental initiative. The reports were rather aimed at enhancing the companys image by focusing on future environmental efforts instead of the past achievements. For instance, 2000 financial reports indicated that the company would spend some resources in some of its refineries, with the aim of providing environmentally friendly products, which was in line with its plans for future standards (Gilchrist, 1998).
In addition, despite the fact that the companys corporate website revealed some environmental commitments, during the time of the two disasters, the disclosures on the link were obviously absolutely limited. Remarks from various viewpoints such as the Totals sustainable development management a few days after Erinka incident virtually supported Total failure. For example, one employee commented that he found it interesting because the CEO was considering himself as a victim of the disaster, yet the issue was associated with the companys relations only (Gilchrist, 1998, p. 25).
One member of the Totals management provided that the companys actions were wrongly received by the public since the company experienced the disaster and unfortunately, a miscommunication similar to what is described in management books as what to avoid ensued, though the aim was generally to clear the company off the negative publicity (Gilchrist, 1998). One attorney had once revealed that Total had been left with no option but to do whatever it could, after all, conviction of such a company was considered virtually impossible. The attorney added that the company would not mind spending a colossal amount of money to rescue its image which was considered more important (Gilchrist, 1998).
Total made disclosures in the corporate press releases, with the intention of regaining the public confidence following the Erinka disaster. For example, for the first time, Total made a press release in on December, 1999, giving details regarding the oil disaster, and at the same time reflecting on some of the efforts that were undertaken to handle the disaster. Some of the actions that were mentioned included direct financing of fuel pumping from the Erinka crisis. The reports added that some compensation funds would be set aside to indemnify those who suffered economic losses, and to pay back the expenses spent in cleaning up land and sea contamination. The reports estimated that the company would spend up to 40 million francs to fund the crisis through cleaning of the environment (Patten, 2002). The public release shows that Total Company was focused on ensuring timely legitimation process. On a separate account, 1999 annual reports disclosed some legitimacy strategies. All in all, the comments from the chairman did not disclose any environmental pursuits (Weber, 1968).
Conclusion
This case brings up the popular perception of accountability and responsibility. Total Company has employed legitimacy theory to fix the problems it experienced after two major disasters. Since the company operates under environmentally sensitive industry, it is highly exposed to public scrutiny. Its decisions in regard to environmental disclosure bring up the wide perception of accountability and responsibility through application of legitimate theory (Yin, 1994).
References
Deegan, C., Rankin, M. and Voght, P., 2000. Firms disclosure reactions to major social incidents: Australian evidence. Accounting Forum, 24, pp. 101-130.
Gilchrist, V.J., 1998. Key informant interviews. Crabtree and W.L. Miller: New York. International Oil Pollution Compensation Funds 2006. Web.
Lindbolm, C.K., 1994. The implications of organizational legitimacy for corporate social performance and disclosure. New York: Accounting Conference.
Patten, D.M., 2002. The relation between environmental performance and environmental disclosure: a research note. Accounting, Organizations and Society, 27, pp. 763-773.
Powell, W. and DiMaggio, P., 1991. The new institutionalism in organizational Analysis. Chicago: University of Chicago Press.
Rawls, J., 1999. A Theory of Justice. Oxford: Oxford University Press.
Scott, W.R., Ruef, M., Mendel, P.J. and Caronna, C. A., 2000, Institutional change and healthcare organizations. Chicago: The University of Chicago Press.
Shocker, A. and Sethi, S., 1973. An approach to incorporating societal preferences in developing corporate action strategies. California Management Review, pp. 97- 105.
Suchman, M.C., 1995. Managing legitimacy: Strategic and institutional approaches. Academy of Management Review, 20(3), pp. 571-610.
The Calgary Herald (Alberta), 2007. Total in court over oil spill: French state seeks $199M in damages. Bloomberg, 13 Feb. p. 45.
The Oil Daily, 2001. Total Fina blast investigated. The Oil Daily, 13 September, p. 56.
Total, 2006, Official Corporate Website. Web.
United Nations Environment Program, 2006. Web.
Weber, M., 1968. Economy and society: an interpretive sociology. New York: Bedminster Press.
Yin, R.K., 1994. Case study research: designs and methods. London: Sage Publications.
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