Estimates of the months since the explosion of the 20th of April on-board the Deepwater Horizon Oil Rig of up to 60,000 barrels of oil leaking into the ocean point to objective damage to whole ecosystems and the communities that depend upon them. The impact of the accident was immediate: 11 people lost their lives in the explosion whilst the extent of the impact on the people and wildlife of the gulf still cannot be estimated as the oil-haemorrhage continues. Despite continued wrangling about who is to blame, BP has accepted responsibility and has also begun paying compensation to people of the Gulf now unable to make a living, setting aside $20 billion for future compensation claims at the request of the US Government. BP has to date paid $165 million in damages to people and businesses affected by the leak (BP). There are another 46,000 claims awaiting documentation to facilitate their assessment.

As investigations continue, this and earlier accidents at BP operations prompt serious questions about BP’s commitment to safety and protection of the environment. The questions are about priorities of value: has safety been left too far behind a too-risky scramble for ever greater profits?

While the causes of the accident are yet to be conclusively determined, initial inquiries have focused on the operation of a subsea blow-out preventer, a piece of equipment used to seal oil wells for maintenance or to avoid accidents (BP). BP have made various attempts to stem the flow of oil using containment caps with limited success. The main hope is to stop the flow with relief wells and new sealing caps, with the potential to increase containment capacity to more than 50,000 barrels a day (BP). But there are still many days to go before relief wells can arrive.

BP America Chairman and President Lamar McKay has testified that,

‘The safety of our employees and our contractors and the safety of the environment are always our first priorities’ (US Senate).

However, recent history stands as a contradiction of that rather extravagant claim. Tub-thumping like this distracts from more realistic assessments of the balances of risks of causing harm against risks of loss of profitability.

Previous statements by company CEO Tony Hayward paint a different picture of BP’s position in relation to the safety of people and the environment:

‘We had too many people that were working to save the world. We’d lost track of the fact that our primary purpose is to create value for our shareholders. How you do that is you need to take care of the world … but our primary purpose in life was not to save the world.’ (You Tube).

Yet more tub-thumping. Recent near misses, the accident in the Gulf of Mexico along with previous accidents in Texas and Alaska indicate that BP have not managed to ‘take care of the world’ let alone save it (BNET).

Creating value for shareholders is without doubt a primary part of any company’s operations. Implying that it always comes second to safety doesn’t wash because how much is spent on safety, thereby affecting profit, depends upon the perceived likelihood of the risk and its possible consequences. Perhaps, if the organisation is very ethical, other factors may enter into the calculation as well. However, equally unbelievable statements like “saving the world” (does anyone seriously believe that BP was trying to “save the world”, the ENTIRE world?) set up a false opposition between profit-making and reasonable responsibility to avoid harm. The extravagant statement merely sends a message that Hayward wanted to make profit the sole purpose that could, if needed, trump any other goal.

While both the Chairman and the (now former) CEO thump their respective tubs, there are good reasons to believe that Hayward’s discourse is closer to the reality of the culture at BP. Evidence provided to congressional hearings indicates that problems with Deepwater Horizon were occurring as far back as November 2009 and that the relevant authorities in BP chose to ignore these warning signs because of concerns about the cost of fixing the faults (Committee on Energy and Commerce).

The organisation’s attitude to risk, a good bellwether indicator of corporate culture, is summed up by the statement of a BP manager involved in the operation of the rig:

‘who cares, it’s done, end of story, will probably be fine’ (Committee on Energy and Commerce).

Further evidence of the same attitude can be seen in the failure of BP to plan for such an accident:

‘It’s fair to say the whole industry regarded the risk of such an accident occurring as extremely low probability. Clearly all future risk assessments must plan for such low-probability, but very high-impact events.’(BP).

The statement identifies the dilemma in a nutshell. It is the same dilemma faced by many, among them nuclear power generators, and, in hindsight, by Union Carbide in Bhopal, India. Low probability and high impact can hide high cost preventative measures and possibly a culture fixated on watching returns to the exclusion of all else: with profit maximising as “primary purpose”, the drive to keep costs low can easily influence risk estimates, both in terms of probability and of impact.

Giving primary priority to profit is a parallel decision to giving primary consideration to shareholders well over and above other stakeholders. (Business Ethics). The ethical target in either area is not “either-or” but “both-and”: profits cannot be placed as a goal over and above all other goals, but a number of goals or purposes have to be held together; shareholders are not the only stakeholders, not the only group who have rights where the organisation’s operations are concerned, staff and local communities also hold rights. Balancing conflicting goals and interests is not an easy task; it is precisely the “core business” of ethics and it requires:

• explicit identification of real and potential harms and benefits
• explicit identification of reasonable stakeholders (those materially affected by decisions) along with ways to understand their situation and hear their voices
• the inherent conflicts in all of these are balanced by explicit appeal to the organisation’s complete list of goals/purposes

Good management increasingly requires good ethics. In the case of BP, the costs to the company and shareholders through lower share prices and loss of dividends as a result of the accident have damaged the stakeholder to which BP had given primacy. In the long run creating an over-simplistic priority of goals and stakeholders puts that very priority at risk.

This entry was posted on Saturday, May 1st, 2010 at 1:13 am and is filed under In-Focus. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.