Engineering Ethics – Why It Matters in the Real World

Engineering Ethics – Why It Matters in the Real World Janeen Judah ’81 President Chevron Environmental Management Company February 8, 2008 Texas A&M University

Outline of Today’s Presentation • About Chevron and Chevron Environmental Management Company • Engineering Ethics and… • Your Employer • Your Boss • You • Graduate School Options • Questions and Answers

180 countries 53,000 employees Over 24,000 retail outlets Chevron: A world-class, global energycompany • 12 billion BOE oil and gas reserves • 2.3 million BPD of refining capacity • 2.6 million BOE daily net production • Where are our employees? • 45% in North America • 23% in Asia Pacific • 32% in Europe, South America, Africa Chevron Headquarters Exploration & Production Refining Chemicals Power Technology Chevron ranks among the world’s largest global energy companies

Inside Chevron Upstream Explore Produce Technology Downstream Midstream Info Tech Energy Tech Refine Truck Pipeline Ship Market Store

EMC provides global environmental and abandonment liability management for Chevron. Work scope includes site remediation, site assessment, facility decommissioning, well abandonment, and site operations and maintenance. What is Chevron Environmental Management Company (EMC)? Richmond Refinery, CA Democratic Republic of the Congo

175 Employees 1800 Contractors 4000 service stations and terminals 125 superfund sites 30 refinery sites 70 offshore structures 1000 wells abandoned/year 300 specialty sites EMC Fast Facts Offshore Gulf of Mexico Porter Oil Field, Michigan Community Service Lawrenceville, IL

Chevron Environmental Management CompanyTouching Chevron’s World California – Central Coast Panama Pakistan Around The World Alaska Latin America Louisiana

Ethical Lapses Can Lead to EngineeringFailures • Famous Failures – case studies: • Hyatt Regency Kansas City Walkway Collapse (1981) • Challenger disaster (1986) • Columbia shuttle (2003) • These failures were spectacular & public, but what about more subtle failures?

What about Legal Issues?Legal & Ethical are not the same • Famous Frauds: • Enron • Tyco • WorldCom • Legal Remedy – Sarbanes-Oxley Act of 2002 • Imposes significant reporting and management oversight requirements for internal controls that may materially affect the value of a company • Criminal penalties for noncompliance • Fewer famous fraud events in last 3-4 years

Before Grew 1985-2001 to 7th largest US Company 21,000 employees Stock price ~$90/share (8/2000) After Bankruptcy December 2, 2001 Criminal prosecutions – 34 Arthur Andersen disappears Liquidation stock announced 1/15/08 – $6.79/share Sarbanes-Oxley corporate governance Enron Before and After

Sherron Watkins’ Famous E-mail to Ken Lay of EnronAugust, 2001 • Dear Mr. Lay, • Has Enron become a risky place to work? For those of us who didn't get rich over the last few years, can we afford to stay? • Skilling's abrupt departure will raise suspicions of accounting improprieties and valuation issues. Enron has been very aggressive in its accounting--most notably the Raptor transactions and the Condor vehicle. We do have valuation issues with our international assets and possibly some of our EES MTM positions. • The spotlight will be on us, the market just can't accept that Skilling is leaving his dream job. I think that the valuation issues can be fixed and reported with other good will write-downs to occur in 2002. How do we fix the Raptor and Condor deals? They unwind in 2002 and 2003, we will have to pony up Enron stock and that won't go unnoticed. • To the layman on the street, it will look like we recognized funds flow of $800 million from merchant asset sales in 1999 by selling to a vehicle (Condor) that we capitalized with a promise of Enron stock in later years. Is that really funds flow or is it cash from equity issuance? • We have recognized over $550 million of fair value gains on stocks via our swaps with Raptor. Much of that stock has declined significantly--Avici by 98 percent from $178 million, to $5 million; the New Power Company by 80 percent from $40 a share, to $6 a share. The value in the swaps won't be there for Raptor, so once again Enron will issue stock to offset these losses. Raptor is an LJM entity. It sure looks to the layman on the street that we are hiding losses in a related company and will compensate that company with Enron stock in the future. • I am incredibly nervous that we will implode in a wave of accounting scandals. My eight years of Enron work history will be worth nothing on my resume, the business world will consider the past successes as nothing but an elaborate accounting hoax. Skilling is resigning now for "personal reasons" but I would think he wasn't having fun, looked down the road and knew this stuff was unfixable and would rather abandon ship now than resign in shame in two years.

How Do You Balance Safety & Profits?The Lessons from the BP Texas City Refinery Explosion • March 23, 2005 – Process explosion: 15 workers killed, 180 injured • Baker Report – Concluded that process safety was compromised due to high emphasis on cost cutting & poor safety culture at refinery • Prudhoe Bay Oil Spill (3/06) – due to corrosion also due to cost cutting • Criminal: • October 2007 – BP pleaded guilty to federal environmental crimes - $50MM in fines + 3 years probation • Plaintiff’s attorneys want >1B$ in fines, hearing this month • Civil: 4000 claims, 1.6B$ spent to resolve about half • Other: • BP has spent >1B$ in plant upgrades since 3/05 • Management overhaul including early retirement of CEO (July 2007) • Yet 3 more fatalities since then – 7/06, 6/07 & 1/08 • Has BP Found the Balance?

The Chevron WayOur overarching ethical standard The heart of The Chevron Way is our vision… to be the global energy company most admired for its people, partnership and performance.

The Chevron Way: Our Values • Our company’s foundation is built on our Values: • Integrity • Trust • Diversity • Ingenuity • Partnership • Protecting People & the Environment • High Performance

Chevron Culture • Open-door atmosphere • Mutual respect and trust …diversity is valued • Good work life/personal life balance • Commitment to protecting the environment • A commitment to continuous improvement, both company and personal • Support and involvement in the community Our culture is a big part of what makes employees want to come to work every day...

Hard Question – Company Ethics • Should your company do business in a country that may not be ethical? • Democracy or lack of it • Human Rights issues (especially women & minority groups) • Country does not provide basic infrastructure to citizens • Possible siphoning off of government funds by rulers • Environmental standards are not as high as US/EU And can we make these judgments for them?

Your Boss May Influence YourDecisions…. • Most decisions are not black/white: • Design uncertainty and risk avoidance • Economics • Schedule pressure • Politics • As a new engineer – how much can you do about it?

Hard Question – Your Boss & Ethics • What would you do when your Boss tries to influence the outcome of your analysis to meet a preconceived goal? • You are the rookie and the influence may be from high up • The preferred interpretation may be within the boundaries of analysis • “Legal” line is rarely sharp • When do you speak up? • How hard do you push?

Why Ethics Matters to You: • Once tarnished, a reputation is hard to fix • “Honesty, Integrity, Reliability” • Aggies are held to a higher standard • Guard your reputation carefully – it is one of your most precious assets! • What really ended Coach Franchione’s support?

Hard Question – Personal Ethics • What would you do when your “company line” does not align with your personal ethical code? • It may be perfectly legal • It may be a matter of perspective or interpretation • You may not have all the facts

You have many options ─ are they worth it? MS/PhD in Engineering MBA Law School Can Graduate Education Help My Career? Disclaimer – these are my personal views!

Increase technical expertise Increase credibility and knowledge Career change or alternate career opportunities Open doors for advancement and cross-training Not always more money Why Graduate Degrees? Career Development B.S. M.S. M.B.A J.D. Usually enough to get started Greater technical expertise Business knowledge Career change

PurposeIncrease technical expertise WhenSoon after BS WhyJob change early in career, increase credibility, technical career path, subject matter expert MS in Engineering

Master of Business Administration • Purpose“Makes you qualified for anything” • WhenBefore age 30 and/or family (and life gets too complicated) • WhyOpens doors, greater value to company, greater emphasis on business skills in today’s corporations

Types of MBA Programs

Law Degree • Purpose/WhyCareer Change • WhenAnytime

My Usual Recommendation… • #1 Night or Executive MBA • Sharpens business skills • May open doors • Increases credibility • Minimal cost/ no lost income • Lots of options in Houston & other major cities • #2 MS in Engineering • Especially if you aspire to the technical career path or your undergraduate degree is in another discipline • Positions you for a technical leadership position, probably earlier • Options – TAMU Distance Learning or Night/Part time

Questions?

Engineering Ethics – Why It Matters in the Real World