Who should be held responsible? BP, Sovereignty, Personhood and the Corporation – Part 1

Something horribleOn 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…

20 replies »

  1. Look how you’ve immediately framed the event – operator negligence or unforeseen accident. You think no one else understands how new this technique is? Everyone understood, Gavin, especially the operators. Your vision is almost embarrassingly myopic; are you truly unaware of the r&d that goes into developing new energy technology? You seem to have this oddly starry-eyed vision of pioneers sinking wells at hitherto-untried depths with no idea of the dangers or challenges involved… Where there is new technology on this scale, there is a complex, multi-layered decision-making process about safety, cost, risk versus reward – and frankly, the people making those decisions are not the ones at risk. A spill doesn’t really hurt the oil industry, Gavin.

    And I’m hoping at some point you’ll grasp the main point of that argument you refer to (mine, at least) – not that corporations should automatically be held accountable for events like this, but that if they use the American legal system to ask for and acquire some of the rights and privileges of individual citizens (which in the US they have) and succeed (which in the US they have) and in this way successfully avoid prosecution or liability (which they have), then corporations themselves have opened the door to an expanded view of “corporate personhood” and may eventually pay the price.

    No-one in business or investment thinks of companies as individuals with the rights of a human being.

    No one here believes that Steve Jobs sends Apple, Inc. a birthday card, Gavin, or that Warren Buffett thinks of Berkshire as a favorite grandchild and imagines dandling it on his knee when it has a good quarter. That’s not what anyone said or meant. I’m more than willing to hear your views on corporate responsibility, but you truly are failing to grasp what’s been said so far.

  2. Oh, and one last (and I do mean last; I see no point in continuing the conversation until I see evidence that you’ve thought about anything in a way you haven’t before – I’ll hope for the best) thought.

    I know you find it revolting that that the lawyers are lining up when we should all be focusing on the recovery efforts. I’m sure you’ll have plenty of disgust left over for these lawyers as well:

    This was for fishermen, and gosh, it could have been a misstep…

    These were for people actually blasted off the rig…. guess whose lawyers were in action first? And this is standard practice, Gavin. If you don’t sign these, you don’t work on a rig again. Look it up.

  3. I think my main complaint with Gavin’s line of reasoning so far is that it does ask me to indulge in either/or-ism when what is called for is both/and-ism. I’d agree completely that job 1 is to deal with the mess, but since none of the leaders are involved in the clean-up (aside from the COO, who’s going to busier than a one-armed paper-hanger in a room full of alligators for the foreseeable future, and since the folks doing the clean-up aren’t the ones who’ll be called to testify, I’m confident that these two processes can run in parallel.

    Now, as to the “who to blame” question. I’ve always been a fan of holding individuals to account for their successes and their mistakes, and have precious little tolerance for those whose lack of foresight or lack of proper concern for risks place others in harm’s way.It is too early for me to know just who all is guilty of what, and how guilty they are, although it’s not too early to form some suspicions (which, after all, is a key element in the investigative process). I’ve seen bits here and there that lead me to believe that there’s at least one company involved with an established track record of not giving a fuck, so that leads me in the direction of both a corporate entity and some individuals within that entity.

    If I play the either/or game, then I either have to absolve some guilty people while meting out punishment that will hurt some other people, many of them innocent, or I have to pretend that collective entities that can live, hive-like, for decades (or longer), and that enable bad behavior by providing bad people with the power and resources to do harm, are somehow not responsible.

    I’ve spent my entire career in and out of corporate organizations (as well as academic ones), and even the biggest, most hidebound collectives can and do learn. They grow, they change, they adapt. You’re certainly right in noting that they’re not like people – they don’t have emotions and human responses – but anybody whose studied Complexity Theory even a little knows better than to pretend that they don’t have a clear agency.

    A Complexity Theorist studying this might use a term like “artificial life,” and in doing so would provide us with a both/and frame that would help us deal with the totality of the problem before us.

    BTW, the fact that nobody’s screaming about Freddie Mac doesn’t mean that we need to shut up about the spill. It means we need to scream more about Freddie Mac. You’re right about the lack of proportionality, but wrong in your suggestion of which direction the error lies.

    At least that’s how I see it. Thanks for starting the argument.

  4. Leaving aside the debate about defining the “business community”, it appears that we’re going to fall into the divide between theory and reality. In theory blame can be assigned after the mess is cleaned up, but the chances that blame will be assigned, wrongdoing punished, and the costs (both short and long term) paid by those responsible are somewhere between slim and none.

    This is America where profits are privatized and losses are socialized. The US government is not going to come down hard on the companies involved, because the companies involved have penetrated the regulatory agencies and bought the politicians. I’m sure that the “business community” is quite happy with this arrangement.

    And the companies involved will be looking for ways to assign blame that lessens their responsibility, like drug testing all the rig workers who made it ashore before they were allowed to call their families. The non-person “business community” is always ready to make sure that individuals far enough down the food chain are liable in order to protect their limited liability up the ladder.

    As usual, the “business community” will expect to have it both ways…and chances are it will get it, because we all know that quarterly profits are the most important thing evah. That and unrestrained political speech for the corporations that everyone knows are not people. See, there it is again: all the privileges and none of the responsibilities.

  5. I’m not attempting to address the immediate difficulties that BP is having in this situation. As should become apparent in the next two articles that follow on, I’m more interested in how corporate “personhood” came to be.

    However, since I’ve struck a nerve. Of course the process of investigating culpability could, theoretically, run in parallel in such an investigation. Given, however, that such an investigation would have to include a site inspection, which is currently a deluge of oil …. how exactly is any “investigation” going to be more than a hazing of the executives concerned without any direct material evidence being available for inspection?

    The least one would expect is the appointment of an independent and legally constituted investigative team to build a case-file. Otherwise we’re all “Alice in Wonderland” and having the trial before the evidence is gathered…

    Plus, to say it is either/or – well, either there was negligence or there wasn’t. If there wasn’t negligence whether you like the people involved or not has no bearing. If there was, ditto.

    Certainly, it is possible to run scenarios on what could go wrong, and much of the investigation that must still take place must be into two aspects of that scenario system:

    i) Did safety precautions take account of those scenarios? If not, we’re talking serious accountability issues here and outright criminalitiy;
    ii) Did the scenarios go far enough in estimating the risk? Maybe they obeyed all the rules based on the risks that were agreed, but maybe they grossly and negligently under-estimated those risks?

    In either of these two cases, someone will be held liable. However, if the scenarios were respected and the worst-case was imagined, but was worse than could have reliably have been foreseen, then “blame” cannot be apportioned to individuals and will have to be born by the companies and states affected.

    You could call this “socialising” the costs, but tax was paid on company profits and, just as the companies concerned should have liability insurance, so should the state, as a net beneficiary of tax revenues. After all, taxes are a way of “socialising” the benefits.

    Lastly, no, I don’t believe that BP should be exonerated while Freddie Mac excoriated. I’m just saying that picking on bad things in private business while ignoring bad things in state-controlled businesses is a little hypocritical. Worse, though, is that if there is an expectation that socialising business ownership would prevent disasters like the Deepwater Horizon then you are sorely mistaken.

    • You say much that makes sense. For instance, it’s wrong to carp more about a corporate fuckup than a public one. Like I say, I’m for more scrutiny on that front. And your observations on the process are apt.

      And yeah, all that oil is going to hamper the investigation. I didn’t say we could COMPLETE the process, merely that we could BEGIN it.

      I look forward to the rest of the series.

  6. Bwahahaha. I’m not interested in spending all day digging up what BP has actually paid in taxes to the US Treasury over the years, but US corporate taxes are a joke, Gavin. Sure the published figure is 35% or whatever, but none of them actually pay that. I read that this year 2/3 of US corporations will pay no actual taxes. So if you’re going to claim that BP’s taxes are a socialization of the benefits, i kindly request that you show us how much BP has actually paid into the kitty so we can compare that to cleanup costs (and not what its employees have paid, what the corporation has paid).

    We all know that BP’s liability beyond direct cleanup is a paltry $75 million, right? Capped by the federal government. We also all know that BP has been running around the Gulf Coast asking people to take $5000 and sign a waiver saying they won’t ever sue BP, right? This includes fishermen who’ve been asked to use their boats to help in the cleanup effort. Come on…the rosy view of the “business community” just doesn’t cut it in the real world.

    And then there’s the fact that BP never filed a plan for what would happen if there was a blowout.

    Ann’s point is a very good one. BP (et. al.) are already busy working the legal angle that Gavin says we should set aside right now to focus on the cleanup. Doing so only gives the corporations involved a head start in minimizing their damages.

  7. Well, according to BP’s SEC Filing, the company’s annual tax payments are as follows:

    2009: $8.365 billion (33.3%)
    2008: $12.642 billion (36.8%)
    2007: $10.442 billion (33.0%)

    The figure in brackets is the percentage of tax paid on total profits. Government seems to be doing quite well out of BP. However, I’m really not certain why you shouldn’t include individual taxes as well. After all, those individual taxes are still derived from the operations of BP. Add that in and the government is doing even better.

  8. Plus you need to add tariffs of all kinds, excise taxes, land fees, drilling fees, sales taxes, wellhead taxes, pipeline taxes, gasoline taxes, et al to the mix and you’ll see that the government does extremely well off BP.

  9. Well i stand corrected, not that those tax payments are truly socialized across the American population. Most of them go towards the military so it can run grand foreign adventures to secure oil resources and transit lines.

    In any case, i have no more arguments. BP is a wonderful company, with only the best intentions for all mankind. You’re right, they shouldn’t be held liable for their fuckups…after all, i’d never be held liable for pouring a quart of used motor oil into the storm drain system, would i?

    Now if you’ll excuse me, i’ve been meaning to kill a few sea turtles since now i know that i won’t be punished for doing so…i guess i should incorporate myself first though, just to be safe.

    • While the govt may do well off of BP, it’s also true that BP does pretty well where the government is concerned. And this, I think, is where Gavin’s inquiry will be most intriguing, if in fact it’s where he’s going. Those who bitch about corporatism – and that includes me – are most concerned about those relationships, where businesses and legislators and regulators make sure they look after each other first, last and only. I have zero problems with businesses making money, especially when it’s done in ways that create jobs and opportunity and that bolster strong communities. Hell, let’s remember that I AM a businessman. I have run my own shop, I currently work for a financial services corporation (that sells into the O&G industry, by the way), and on the side I’m a partner in a small business (that, I’m always proud to note, became profitable in its first full year of operation).

      My problem isn’t self-interest or the profit motive. It’s predatory self-interest, the opposite of Tocqueville’s “self-interest, rightly understood,” and an ethic that places profit above all other social concerns, including the public interest.

      Let me pose a hypothetical. Let’s say there’s a company – call it Big Ass Company, Inc. – and they’re one of the few largest businesses in the country. Let’s further say that they operate more or less like all other big companies operate. And they have come up with a new product. Call it Destructium! Now, once it’s rolled out, it quickly becomes clear that Destructium! poses a clear and present danger to democracy. Something about it causes people to behave in ways that are guaranteed to destroy the country. But there’s nothing illegal about its manufacture or sale or use. It’s just it’s effects, which are indirect, but clearly understood.

      Does the government have the right to shut BAC down or outlaw Destructium! (which would put them out of business and cost its shareholders brazilians of dollars? That is, do you believe that GOVERNMENT has the right to OUTLAW CORPORATE ACTIVITY when it is found to endanger THE PUBLIC INTEREST?

      If so, all that remains is to decide where we draw the line. If not, well, you’ve just made my point for me, haven’t you?

  10. The judge of a company being wonderful is not through “Best intentions for all mankind,” but by how much money they make for their shareholders. BP has a 19.30% return on equity, an 8.40% return on assets, and the yield is 6.9% which is pretty nice. The stock is in the lower range of the past 52 weeks, but o9ne could expect it to revert to the mean. Thanks for bringing up BP on my radar. I just bought a few shares for my own account…looks like a good trade..

  11. @ Sam….How would you define the public interest and who would decide what the public interest is? I don’t trust our corrupt elected officials and bureaucracy to do what’s best for me and mine or to determine what the public interest is. For different people, and in different areas, the public interest is not the same. In AZ, the public interest re illegal aliens is different than in a place like MN where they’re not affected by the high costs to the infrastructure. Different subsets of society also have different ideas of what the public interest is, like retired senior citizens have a different idea than people in Gen Y.

    • But you DO trust corrupt corporate officials at places like Goldman and Enron and Tyco and Qwest? I know you’re of the opinion that BP is a damned fine company, but I guess I wonder if there are limits to the “free” market argument.

      You’d like to try and force me to articulate the specific nuts and bolts of how we’d define public interest, but you imagine that you wouldn’t then be obligated to the SAME task with our current oligarchy, right? Do you think you can nitpick the minutiae without being held to account for the various policies running amok in corporate America?

      You don’t REALLY want to be held to that standard, and your dodge that all a company is required to do is make a profit isn’t valid in a world where that company accumulates power over ALL decision-making.

      Now, I notice that you didn’t answer the question I posed in my comment. I can see why you wouldn’t want to answer it, because it deprives those who believe as you do of the basic assumptions that you need to win the argument.

      Back to YOUR question, though. Give the power, the apparatus and the resources and I’ll be able to generate a better set of answers within six months than I can in a couple of minutes on a break. However, I’d start with where we left off in 1980, because we had (in the broadcasting realm, at least) a set of principles that worked pretty damned well for 50 years or so. Then I’d blow up the current hegemonic assumption that corporations come first instead of citizens. That’s where I’d begin the process, and while the end result would certainly not be perfect, I’d wager all current and future earning that it would be better than what we have.

      Granted, that’s setting the bar low, but it’s not a bad starting point.

  12. Yeah, 1980 would be a good place to go. In 1980 we had 13.5% reported unemployment, 9% reported inflation, the 30 year went to 15.75% and overnight interest rates went to 22%. Excessive speculative bubbles shocked the economy and the top marginal income tax rate of 70%. Farmers going belly up in droves due to follies like grain embargoes etc…..I like those numbers which were a product of the government incompetence and think that it would be good to revisit that era. Good choice Sam and I bow to your sharp intellect

    • 1: Yes, because recessions only happen when governments are out of control. When corporations are left to run free the way God intended you never have economic downturns. You know, like right now.

      2: If you’ll read back, you’ll notice that nobody has taken any personal shots at you in this entire thread, but you couldn’t hold up your end of a rational debate without going negative, could you? You’ve had two chances to answer a fairly straightforward question about what you believe, but you’ve ducked. Instead of debating your ideas, you resorted to insults.

      What are we to conclude from this?

  13. Lex, I make no comment as to whether BP is “perfect” or not. I merely point out they pay their taxes. If the US government chooses to spend that on things that don’t help the US people then that is a matter for the next elections. Taxpayers don’t generally get to choose which part of government can spend their money. Although, I’m sure you’re going to mention that many companies lobby. But that is for special treatment rather than on overall tax policy.

    Sam, certainly I believe that governments and businesses get far too cozy and I have written plenty about this and, no doubt, will again in the future. However, that really isn’t my thrust in this series. I have long argued that tax policy must be neutral, neither favouring nor singling out any particular taxpayer or industry.

    The reason is very clear: if a government becomes overly reliant on a single taxpayer then that taxpayer has a hold on the state – a certain quid quo pro will result. I pay high taxes on the expectation that you grant me favourable treatment. That is both anticompetitive and antisocial.

    The US and UK governments have become overly reliant on the banking industry. The subsequent implosion shows exactly why that reliance should never have been allowed. Australia is – with its new proposed tax on mining – placing it in hoc to mining interests. Say goodbye to a carbon tax in Australia if coal-miners are significantly asymmetric taxpayers.

    As mentioned, this type of predatory mutual interest is not my focus in this article, but I have no problem taking it up another time.

  14. I looked at the SEC filing and note that it does not explicitly say that those figures are all US federal taxes. The chart directly below the one quoted also puts the 2009 number for “taxation” at $525M. I don’t read these things on a regular basis so i don’t understand them (nor do i care to take the time to learn). Also, the filing simply says “taxation”, which would seem to include all the taxes that Jeff mentions.

    Now, i notice that no one has addressed my bringing up compensation being capped, no blow out plan or the immediate legal reaction from BP…that last one’s key if We the People are supposed to wait for the dust to settle to sort this out i want to know if BP should be doing the same thing or do they get to play by different rules?

    At the end of the day i can wash my hands of this. It’s not my backyard and i have no intention of ever visiting the area. But you know that 20 years after the fact the communities (real communities not “business communities”) affected by the Valdez spill still haven’t recovered. The herring that many of the fishermen depended on for their livelihoods have never returned.

    Which brings us to my argument that “libertarians” (quotes because i’ve met as many true libertarians as i’ve met true Communists, which is a number that’s suspiciously equal to the number of Dodo’s i’ve seen in the wild) never ever ever want to address. What gives a company like BP the right to infringe on my rights? Let’s just say that i’m a property owner on the Gulf Coast currently watching tar balls wash up on my beach. BP (et. al.) have flagrantly violated the sanctity of my property in pursuit of their profit. Say i run a bed and breakfast dependent on tourists sunning themselves on my beach which is now ruined. Who gets more rights and why?

    All that oil spilling into the gulf is BP property now infringing on both the commons and private property. But we never hear the logical, libertarian argument that BP is infringing on the rights of others.

    And that’s done, no investigation needed. That’s BP’s oil and it’s not where it’s supposed to be.

  15. Because of recent historical precedents (Enron, etc.), I’ve come to this belief: The larger an institution of any kind, the greater the prospect of deceit (compounded by conceit) on its part.

    If that deceit transgresses law, then let the prosecutors aim at the individuals who ordered or condoned the deceit. But the largest of institutions may be a government — and governments, because individuals in government order or condone it — practice deceit compounded by conceit. Governments are harder to pin the blame on because its practitioners are really, really good at passing the buck.

    As I age and trend conservative, I begin to want a public hanging of a fall guy CEO if only to demonstrate to others the consequences of purposeful deceit and malfeasance. Sadly, it’s 2010 and not 1870.

    This, this ugly spill, its ugly political fallout, and BP’s role and the federal government’s role, is, in a phrase, a fucking cock-up. As usual, those who will profit most will be lawyers.

    All the arguments I’ve read here are compelling, but I cannot say I completely agree with this one or that one. I find that frustrating, because I need to know a reason for this, and I need to blame someone. Perhaps I suffer from Blame Goldman Sachs Syndrome. At some point, John and Joan Q. Public and I will depart wildly from rational consideration of the reasons for Corporate Fuck-ups and Deceit and Government Blindness (Or PayOffs) to Same.

    BP and the feds can expect growing irrationality about BP and god knows what else corporations and government have screwed up in this decade. (Anybody got a phone number for the Tea Party?) And don’t get me started on how journalism writ large has timidly kept itself at bay from all this (primarily because corporate journalism has suffered from considerable self-deceit and conceit).

    I admire the eloquence and argumentation here. Great work, Scrogues. But I’m just pissed at all this malfeasance. I may ask Sarah Palin if she wants to leave Todd for me … i could use the intellectual and ideological comfort.