Where do we go from here? Looking at the BP Oil Spill from the viewpoint of the CR profession.

 can only imagine the nightmare.  Riding the dark ocean in the pitch of night before all hell breaks loose sending up a cloud of heavy "black rain" and fire, casting men and equipment into the icy water, ultimately to their deaths at the bottom of the sea.  Even in the best of times, the open ocean is one of the harshest, most unforgiving environments on earth.  It takes a particular kind of person to risk their life on a daily basis, facing incredible dangers at almost every turn.

Many have started comparing this disaster to the Challenger.  We owe the term "groupthink" to analysis of the Rogers Commission report.  NASA, its people, contractors, and leadership, shared a "culture of go" where dedication to the mission - the desire to send humans into space - ultimately crowded out safety concerns.  It takes a particular kind of person to go into space and a particular group of people to send them hurdling into space.  It's not a job for the feint of heart or the risk averse.  In hazardous occupations, from soldier to miner to offshore oilrig worker, acts of bravery get celebrated.  Almost by necessity, a culture of risk, a "culture of go" can elevate acts of bravado over acts of risk mitigation.

Unfortunately this situation has devolved into finger-pointing where compliance has become all people do.  There's so much to comply with that's all people have time to do and that's all they aspire to do.  Halliburton's Tim Probert testified before the Senate that they were "contractually bound to comply with the well owner's instructions."  BP exec Lamar McKay said "he wasn't 'familiar with the procedure on that particular well.'"  Frank Patton, MMS drilling engineer, who approved BP's drilling permit said he was never told to check if blowout preventers, the last line of defense in catastrophic failures like this, are adequate.  (Source: WSJ, pg A4, May 12, 2010).

While the finger-pointing is disappointing on its face, it highlights something we've said in the CROA for a while: you can't comply your way to greatness.  When compliance becomes the goal, no one takes responsibility.  When compliance becomes the goal, no one goes above and beyond.  If you want a smoking gun, here's what to look for:  if Mr. Probert and his colleagues at Halliburton knew to countermand Transocean's order but didn't, or BP knew to test the blowout preventer but didn't, or if Mr. Patton and the folks at MMS knew they needed to check testing certificates but didn't. or any of a thousand people involved knew to speak up but didn't we'll see that once again groupthink conspired with a culture or risk to bring catastrophe.  Unless and until leaders lead and we hold ourselves to a higher standard, more regulations will close this barn door, but not prevent a future calamity.  We need higher standards and we need to hold ourselves to a higher standard.

To me, that's where the corporate responsibility profession comes into the picture.  CR professionals stand as a physical representation of a higher standard.  As we step back from the finger pointing and trying to figure out who's to blame for the BP disaster, we need to look at what we as a profession will take on to hold our companies and ourselves to a higher standard.

Before we dive into our collective response as a profession, let's first look at the BP disaster and answer the question of where do we go from here?  This all occurred in international waters.  So, who’s responsible for the clean-up, the upstream and downstream damage, and for setting new standards and regulations?  

I spoke with a senior communications executive for the petroleum industry.  Here’s what he told me about who’s responsible for clean up and damages:  “Under the Oil Pollution Act of 1990 (OPA 90), the responsible party (the lease owners, i.e., BP and its partners), not the rig operator (Transocean) are responsible for all cleanup costs.  On top of the cleanup costs, the responsible party must also pay up to $75 million in other damage claims (i.e., non-cleanup costs like local community impact, lost wages to fishermen, etc.). However, that liability limit does not apply in instances of gross negligence, willful misconduct, or violation of applicable federal regulations. Injured parties can also pursue damages in state court, which are not limited by the federal liability cap.  OPA 90 also established an Oil Spill Liability Trust Fund, where everyone operating in the offshore pays a special tax that creates an extra cleanup / damages fund.  This is an extra insurance policy that allows for up to $1 billion per incident to be taken from the industry’s Trust Fund to pay damage claims.”

That helps shed some light on who will foot the bill, but what should we as a society and a profession do now?  Congress is already acting but unfortunately not all the facts are known.  Last week Politico characterized the US House of Representatives as “the do-nothing (but politics) House,” a “chamber [that] has become… little more than an election-year staging ground.”  (Source: “The do-nothing (but politics) House.”  Politico, May 14, 2010).  Over a dozen bills have already been introduced before we have all the facts.  In the words of my senior petroleum industry source, “Coolerheads must prevail.  It’s time to work together and understand the facts, and learn from them first.”  This has become a case of Corporate Responsibility colliding with Congressional Responsibility.  

Probably the most significant bill, introduced by Senator Robert Menendez (D-NJ) would spike the “maximum liability for oil companies after an oil spill from $75 million to $10 billion.  The legislation has significant support from Democrats, and the White House has indicated it backs an increase in liability caps.” (Source: “GOP blocks oil liability bill,” Politico, May 14, 2010).  While this may sound great on paper, it could bring about a raft of unintended consequences.  Senator Menendez likes to characterize this as “straightforward” and “common sense… Either you want to fully protect the small businesses, individuals, and communities devastated by a man-made disaster… or you want to protect multi-billion dollar oil companies from being held fully accountable.”  The sad thing is that passing this bill would actually protect the largest oil companies and basically wipe out the smaller ones.  According to my oil industry source, “only about two companies” could afford to pay the insurance premiums.

Heard of too big to fail?  This is how we get there.  In the name of “holding companies accountable” we end up imposing compliance costs that force industry consolidation.  Why does it seem like Halliburton is involved in almost every corporate liability nightmare these days?  In part because Halliburton acquired its way into tentacles that stretch into every major heavy industry on the planet.  It bought up the smaller companies that couldn’t keep up with all the costs imposed on them.

Let’s be clear:  I’m not saying we don’t need higher standards and more effective oversight.  We need the facts first and then we need to make the tough decisions.  I recall something US Pay Czar Ken Feinberg said at the CRO Summit in Boston: the regulatory power and authority existed before the financial collapse to avert it.  What was missing was the will.  Before we run off and pass more laws and regulations, let’s get the facts and let’s work on summoning the collective will to be more effective at oversight and prevention in the future.

Let's also take a look at our role as a profession.  In an earlier post I asked the question about whether Tim Probert and his colleagues could or should be held personally liable in cases like this. I hope that Mr. Probert and his colleagues were in the dark on these issues.  If not, woe betide them.  Regardless, as a profession, we need to summon the collective will to stand for the higher standards we all aspire to -- and hold ourselves and our companies accountable in the process. 

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