On 20 April, pressure built up in the well 1,500 metres beneath the Deepwater Horizon, an exploratory oil rig in the Gulf of Mexico. The pressure catapulted up the pipeline, overcoming the concrete keeping it in place, as well as the blowout preventer designed to stop exactly this type of occurrence.
The gas exploded as it hit the rig sending it to the ocean floor and taking the lives of 11 of its 126 crew. The immense pressure in the rupture is propelling some 5,000 to 25,000 barrels of oil up into the ocean every day.
No-one knows what went wrong. Whether it was direct negligence on the part of the various operators, or whether something unforeseen happened that we can learn from … for next time.
What has happened is that frustration has exploded and politicians are scrambling to ensure that they are ahead of the tide. Business leaders, already much-despised after the credit crisis, are being excoriated and dragged into ad hoc commissions of inquiry to answer questions that they are unlikely to have answers for.
In the mean time one of the largest clean-up operations in history is taking place. Over 500,000 feet of oil booms have been deployed with another 600,000 feet in reserve. More than 200 boats and ships are fighting the slick with dispersants and booms. Planes fly overhead, remotely operated vehicles wave “wands” pumping dispersants in the oil plumes to break up the oil at source. Engineers are working to build a cofferdam to funnel the leak into a new pipe. A relief well is being drilled.
Nothing is working just yet and the efforts are costing BP $6 million a day with a total projected cost of the cleanup at somewhere around $10-12 billion.
And it must be “someone’s” fault.
Held to account and being seen to be held to account
Let’s put BP’s travails into perspective. The world’s worst oil spill was in 1979 when the Ixtoc-1 well released 3.3 million barrels into the Gulf of Mexico. The Castillo de Bellver ran aground off the coast of Durban in South Africa in 1983 and coughed up 1.8 million barrels. The Exxon Valdez which broke up off Alaska in 1989 and released 260,000 barrels doesn’t even make it into the top 10.
So the BP slick, while bad, isn’t impossible.
Second, the public outcry is not proportionate. Freddie Mac, the US’ embattled state-supported mortgage giant, has lost $50 billion in the last two years and has begged for another $10.6 billion to cover losses made just in the first three months of 2010. That leak hasn’t been plugged and there is no word on whether it will be plugged.
Charles Haldeman, CEO of Freddie Mac, does not get rubbished on national television by the US president or dragged before congressional hearings quite the way Tony Hayward, BP’s CEO, does. This despite the fact that Freddie Mac has caused the equivalent of six Deepwater Horizons in the space of two years.
So, the question that incenses many (and certainly causes a certain amount of outraged debate amongst the Scrogues) is whether or not companies should be permitted to escape blame. Many of the Scrogues believe that the company should be held accountable. I am not always convinced that this is the best approach.
The first step is to stop the problem, fix the impact and restore order. Then an investigation can discover the causes of the disaster. If there was genuine negligence then blame and punishment must be meted out. If there was not then the costs of the cleanup must simply be borne by those ultimately liable.
However, if there is guilt who must be punished? Those responsible as individuals or the company as a collective?
I’ve heard that argument “holding a company accountable” and I feel that this is counterproductive. Executives make decisions, not companies. Holding the cleaner on the factory floor accountable for decisions made by an executive is just as silly as holding that executive responsible for a cleaner flouting company safety standards.
Whether you agree with that or not, recognise that when you hold companies accountable instead of the actual decision-maker you will end up punishing not just the entire company, but also everyone dependent on that company.
For instance, just recently in South Africa a number of bread companies were found guilty of price-fixing (holding the price of bread – a staple of the poor – well above the market value). The companies were fined a ridiculous amount of money (“holding the company to account”). The result was that hundreds of workers were retrenched to pay for the fines (who had nothing to do with the price fixing), the bread price went up to cover the costs which affects the poor (who were the original victims) and the guilty executives kept their jobs.
I’m not sure that this is what politicians expected and I don’t believe it was a good decision. The same goes for anything else that “companies” supposedly do. That cop-out, “hold the company responsible, not me” is just as unacceptable as the excuse, “I was only following orders.”
A company is only a legal entity in respect of it being its own asset. This is simply a matter of continuity and liquidity. No-one in business or investment thinks of companies as individuals with the rights of a human being. They are not.
Continued in Part 2…