The ongoing disaster in the Gulf has elicited heated responses as the media continues to provide images of dead wildlife, fouled marshes and beaches, losses to owners of employees and small businesses, and continuing reports that BP is putting the health of cleanup workers at risk by continuing to refuse to allow respirators to be used and providing inadequate safety training in the face of evidence of health risks.
In addition, the amount of liabilities that BP will face is not yet known. The public at large is likely not getting an accurate tally of the daily volume of the output. While BP will drill relief wells in August, there is no assurance its initial efforts will be successful (as we pointed out, the last major Gulf oil disaster, the Ixtoc well in 1979, it took ten months to halt the flow of oil from a well at a depth of only 100 feet. Moreover, in addition BP compounding its liability through its inattention to the health of cleanup workers, new information is emerging that suggests the environmental damage could be worse than heretofore thought. The oil leak contains unusually large amounts of methane. As the Associated Press reported:
The oil emanating from the seafloor contains about 40 percent methane, compared with about 5 percent found in typical oil deposits, said John Kessler, a Texas A&M University oceanographer who is studying the impact of methane from the spill.
That means huge quantities of methane have entered the Gulf, scientists say, potentially suffocating marine life and creating “dead zones” where oxygen is so depleted that nothing lives.
“This is the most vigorous methane eruption in modern human history,” Kessler said.
And this is before we consider the issue of culpability: BPs’ simply awful record of safety risks, its failure to do even remotely adequate containment of the oil on the surface even though the safety plans it submitted to regulators said it would (and experts have said it was quite feasible).
With this as backdrop, it has been stunning to see some of the defenses of BP in the wake of the announcement that BP will establish a $20 billion fund as a step in compensating leak victims and Thursday’s House Committee on Energy and Commerce’s grilling of BP CEO Tony Hayward.
The fund has been bizarrely treated as some sort of abuse of power, even though the stock traded up on news. Huh? This came out of a negotiation, and the US has every reason to want to get BP to conserve cash, and BP has never denied that it owes a lot of people a lot of money, and the ultimate amount of damages is unknown. As law professor Bill Black noted, it’s about competence as a creditor. Civil fines alone could be $4300 a barrel. Uncle Sam will presumably be sending a bill for all the Coast Guard resources deployed on behalf of BP. Criminal sanctions could result in the loss of BP’s US drilling licenses and Federal contracts. It isn’t hard to come up with scenarios where the tab from the federal government alone exceeds $20 billion, and if the US does strip BP of some of its US sources of income, its ability to meet those claims would be impaired. As ProPublica noted:
The EPA said in a statement that, according to its regulations, it can consider banning BP from future contracts after weighing “the frequency and pattern of the incidents, corporate attitude both before and after the incidents, changes in policies, procedures, and practices.”
Several former senior EPA debarment attorneys and people close to the BP investigation told ProPublica that means the agency will re-evaluate BP and examine whether the latest incident in the Gulf is evidence of an institutional problem inside BP….
The most serious, sweeping kind of suspension is called “discretionary debarment” and it is applied to an entire company. If this were imposed on BP, it would cancel not only the company’s contracts to sell fuel to the military but prohibit BP from leasing or renewing drilling leases on federal land. In the worst cast, it could also lead to the cancellation of BP’s existing federal leases, worth billions of dollars.
Present and former officials said the crucial question in deciding whether to impose such a sanction is assessing the offending company’s culture and approach: Do its executives display an attitude of non-compliance?….In its negotiations with EPA officials before the Gulf spill, BP had been insisting that it had made far-reaching changes in its approach to safety and maintenance, and that environmental officials could trust its promises that it would commit no further violations of the law.
Yves here. So while some commentators would like to characterize BP’s star turn before Congress and the President as theater (and it is true that Obama in particular desperately needs to re-establish his bona fides here), there is a serious purpose afoot. BP has been a serial miscreant. It has not only amassed a horrid safety record, it has misrepresented its commitment to turning a new leaf (one BP shill in comments here had the gall to blame BP’s poor safety record on its failure to turn around the cultures of its US acquisitions, Amoco and Arco. Those took place more than ten years ago. Any veteran of corporate transactions will tell you how seldom the culture of purchased businesses survives even when the buyer desperately wants to retain it. These sort of arguments illustrate how difficult it is to defend BP’s conduct).
So part of the “theater” is actually deadly serious. Does BP get it, or does understand it at least needs to credibly fake getting it? If the spectacle of eleven figure losses isn’t a “come to Jesus” moment, nothing will be.
Similarly, the House hearings were no ambush; the House sent a detailed letter to BP alerting the company to the topics it intended to cover with a good bit of detail on the decisions and procedures it found troubling.
Was it reasonable to expect much new information from Hayward? No. But there is a tremendous amount already in the public domain. A display of contrition, admitting to things it can’t possibly deny (faux candor) and acting respectful would have at least said that BP understands the gravity of its situation.
But that isn’t what we got. An assessment of Hayward’s performance in the Telegraph (hat tip reader Doc Holliday):
Accused of stonewalling, he stonewalled. He couldn’t, or wouldn’t, answer most of the questions. In fact, he looked like a tired undertaker who was rather bored with having to look mournful. Given that a woman held up proceedings earlier on by shouting protests him, it would have been advisable to show some regret rather than say he felt “a great deal” of responsibility for the oil spill and that it was “a tragedy” with all the emphasis and enthusiasm of an autistic sloth.
Yves here. Of course, this ghastly show could simply be Hayward’s failing, not BP’s but that seems awfully generous. Companies chose CEOs deliberately, precisely because they tend to print the values and habits on the organization. Thus Hayward’s arrogance and tone deafness is unlikely to be an unfortunate deficiency in an otherwise stellar executive; it’s likely BP’s board saw those qualities as attractive. The high handed remarks of BP’s chairman suggest that Hayward’s attitude is widely shared within the oil company.
Consider this exchange during the hearings. From Glenn Stehle in comments:
There were several house members who brought up BP’s safety record at the hearing. It is Hayward’s contention that BP has changed since 2005-6, since he’s been at the helm.
Perhaps it is Bruce Braley who did the best job of countering Hayward’s claim. You can see his questioning of Hayward beginning at minute 00:18:30 on Part 3 in the C-Span coverage.
Braley: Explain to us why between June of 2007 and February of 2010 the Occupational Health and Safety Administration checked 55 oil refineries operating in the US, two of those 55 are owned by BP, and BP’s refineries racked up 760 citations for egregiously, willful safety violations accounting for 97% of the worst and most serious violations that OSHA monitors in the workplace. That doesn’t sound like a culture of safety.
Hayward: We acknowledge we had very serious issues in 2005 and 2006.
Braley: Well I’m not talking about 2005 and 2006. I’m citing from an OSHA study between June of 2007, on your watch, and February of 2010 where OSHA said “BP has a systemic safety problem,” and of those 760 that were classified as “egregious and willful,” it’s important to note that that is the worst violation that OSHA can identify, and their definition is “a violation committed with plain indifference or to intentional disregard for employee safety and health.” Ninety-seven percent of those egregious violations at US refineries, on your watch, were against your company. That doesn’t sound like a company, that to use your words, “is committed to safe reliable operations as your number one priority.” There’s a complete disconnect between your testimony and the reality of these OSHA findings. Do you understand that?
Yves here. Given how far the state of the art in
lying in public spin doctoring has evolved, Hayward’s appearance looks as if he couldn’t even be bothered to offer defenses that were remotely plausible (the OSHA violations have been widely reported in the US media, they were certain to be discussed in the hearings). And the degree of preparation indicated by the extensively footnoted letter sent prior to the hearings signaled that he was appearing before a well briefed panel that was unlikely to cut him any slack.
Of course, this half-hearted performance may reflect the fact that BP regards Obama as a paper tiger, and that may prove to be 100% accurate. Or it could demonstrate that BP’s culture of corners-cutting is so deeply embedded as to be pathological.
Despite this sorry show, there have been some hysterical, strikingly divorced from reality defenses of BP, a particularly notable one in this week’s Economist. Ryan Chittum took it apart at the Columbia Journalism Review:
The Economist has a pathetic leader this week criticizing Obama for hammering BP and raising the ridiculous idea that his corporate-friendly administration is anti-business.
It actually (really!) calls the president “Vladimir Obama” and writes:
The collapse in BP’s share price suggests that he has convinced the markets that he is an American version of Vladimir Putin, willing to harry firms into doing his bidding.
The normally sober Economist has gone off the wagon here.
First, it knows better than to “suggest” what “the markets” think. Second, that blew up in its face rather quickly. Instaputz points out that BP shares soared 10 percent on news of the $20 billion fund… the Economist’s spin here is obnoxious. If anything ends up ruining BP, it will have been its own actions. Go read this The Wall Street Journal piece for a look at the company’s negligence.
And BP should have to pay for all the associated costs of its actions, not just the actual bill for cleaning up the oil….they will be very, very costly.
Moreover, a company’s market capitalization is based on expectations for future earnings. This disaster will surely make it harder for BP to get drilling rights that investors expected it to have just two months ago. The political climate for offshore drilling has just undergone a seismic change.
Another big factor in BP’s share decline is pure uncertainty. Investors don’t like it. Right now, the only thing certain is that BP’s hole is going to be spewing toxic oil into the Gulf of Mexico for at least another two months…
And this paragraph is a doozy:
The vitriol has a xenophobic edge: witness the venomous references to “British Petroleum”, a name BP dropped in 1998 (just as well that it dispensed with the name Anglo-Iranian Oil Company even longer ago). Vilifying BP also gets in the way of identifying other culprits, one of which is the government. BP operates in one of the most regulated industries on earth with some of the most perverse rules, subsidies and incentives. Shoddy oversight clearly contributed to the spill, and an energy policy which reduced the demand for oil would do more to avert future environmental horrors than fierce retribution.
BP was still being called “British Petroleum” here before the oil spill. The “newspaper” says that the administration is “vilifying BP,” as if it’s not a villain here. Hey, be nice to those guys that just spilled a hundred-million gallons of oil (and counting) on your shores and in your waters because they cut corners on their oil well! It’s unsporting to “vilify” them.
The Economist is part of the problem I talked about yesterday: Corporations get personhood under the law, but we’re warned you can’t retaliate against them for their bad actions. It would be bad for business!
But the biggest laugher is this, which it writes in arguing that the government should get its share of the blame (which it most definitely is, including from Obama himself in case The Economist hasn’t noticed):
BP operates in one of the most regulated industries on earth with some of the most perverse rules, subsidies and incentives.
So, it’s in one of the most regulated industries, but at the same time, regulators are responsible for its actions because they didn’t regulate? Huh?
Yes, regulators get plenty of blame for not forcing BP to act right, but BP is ultimately at fault here—especially since it helped get the regulators called off in the first place. That laissez-faire stuff didn’t happen in a vacuum.
Yves here. As Rex reader described the “blame the regulators” canard:
You have a few drinks and are driving home at about 100 mph, when it starts to rain. You lose control, crash, taking out a bunch of other drivers and starting a fire which burns down a lot of the surrounding neighborhood. Your defense — there were laws in place that should have prevented the accident. The fault lies with the cops who failed to stop you before the unfortunate accident which was triggered by an act of God (the rain).
Yves here. One of the reasons for negative reactions from the UK and some readers here no doubt isn’t that they have a vested interest (as in own BP stock) or simply haven’t been following closely the details of BP’s conduct (not just the decisions that led to the blow-out, but its actions in the containment/cleanup process). Remarkably, BP got very good marks from a corporate social responsibility standpoint, which suggests there are deep seated flaws in that methodology. The fact that they don’t consider safety records or regulatory violations for companies in production or environmentally sensitive businesses is stunning. A colleague, who runs a website that aggregates the ratings by corporate social responsibility experts wrote this defense of BP last month:
Our rating system is broad and balanced. It is backward-looking—but incorporates enough data points to be a good estimate of recent reality. Much of our evaluation is comparative—a company is judged against the performance of others in its industry. We measure twelve subcategories of performance—plus more than a dozen special issues. So, a company that performs poorly in one area can redeem itself in the others.
If you look at BP, it has remarkably good scores for a major oil company. I’ve attached a screen shot of the data you’d see if you were a subscriber. You’ll see several subcategory ratings above 70. It is pretty hard to get this good a score. We are tough enough that we don’t hand out any “As” and very few “Bs!” The average score is in the mid 40s.
For instance, BP has excellent governance scores. Take a look at the attached report from Governance Metrics (the best source IMHO of governance info). BP has excellent scores for its handling of board and transparency issues—especially when you compare it to other oil industry companies. Regardless of how BP did with the oil spill disaster, it probably is a pretty well governed company, with a balanced and responsible board.
Similarly, if you look at our custom report from Asset4, you’ll see that BP garnered 20 awards for its community service (one of the top numbers in our system). The organizations that granted their favor to BP were not all stupid, fooled, or swayed only by PR. They did real work to investigate and check on BP’s performance. Of course, many may regret the honors they bestowed on BP and renounce them after the fact. We are certain to see a drop in BP’s community scores, as we move forward.
Look at the other sources on our list. The Accountability list contains only 100 companies. It is hard to get on it. Universum says BP is great to black people. This is not what you’d expect from a bunch of red neck oil people! The Human Rights Council only has 100 companies on their list—and they check each carefully. BP joined BSR, UN Global Compact, and Carbon Disclosure Project. Joining these groups does not prove BP is good. But, it does say they care about transparency and communication—one valid component of social responsibility.
Someone using our system could knock BP for their involvement in military contracting or for their pollution problems. Some people will want to be anti any company that pumps oil or that does any kind of resource extraction. That is OK, because we are not saying there is a “right” overall number for BP or that they should always be a top company. However, looking at them broadly and fairly, they are not that bad—and they are certainly as good or better than most of the rest of the oil industry.
And based on that, he concluded: I don’t think the mistakes they’ve made changed their intentions or erased the reality of the hundreds of positive programs and initiatives they put in place over the last twenty years.
Yves here. This, of course, is halo effect, the tendency to see people, or in this case businesses, as all good or all bad. BP does well on CSR metrics, ergo it can’t be all bad. But this misses the point. The multi-billions of damage, and real possibility of lasting environmental damage, particularly if it is the result of gross negligence, does indeed more than cancel out whatever positive BP may have done in the past. That is something its defenders appear unable to recognize.