It’s time to get tough on repeat corporate offenders.

By Bob Monks

As we pass the one-year anniversary of the Gulf Coast disaster, I am reminded of the earlier BP disaster at the Texas City oil refinery in 2005. I’m still astounded that a leading company previously charged with numerous felonies for a major environmental disaster was allowed to have another major disaster just five years later. In the same country. In the same state.

Following the Texas City disaster, I was retained as an expert witness by the plaintiffs in an action brought by injured parties. The extent of the damage was impossible to ignore, and it was clear this couldn’t simply be brushed under the rug and huge monies paid to make it go away. The problems were far too pervasive for that. It really was a question of the culture of British Petroleum. 

BP grew very aggressively under Lord John Browne by buying American companies, and they bought them at very good prices when oil prices were down. Unhappily, the low price of oil and general culture at BP meant the principal management mandate was to cut expenses. Costs were cut ruthlessly in the area of safety. There is no question that in the Texas City fire there had been an absence of training, supervision and capital investment - and above all, a culture there of death, not a culture of safety. 

Coming out of any corporate disaster, the usual procedure is to hire some prestigious law firm to investigate and to come to an opinion that in effect says, “You’ve been bad boys, but you’re working very hard to fix it and nobody should go to jail.” BP hired former Secretary of State Jim Baker and he wrote such a report. But at the end of Baker’s report he spoke about a failure of a culture of safety; he specifically recommended that the board of directors appoint a particular director to be in charge of this and they charge themselves with a mandate of achieving workplace safety for all employees. 

BP appeared to take this seriously and, in the 2006 annual report, the company promised, “our long-term goals are ‘no accidents, no harm to people, and no damage to the environment.’ We have made it clear that: Everyone who works for BP, anywhere, is responsible for getting HSE right. We have put Health, Safety and Environmental management systems and processes into place to help us live us to these aspirations.”

Today, these promises and mandates seem all the more remarkable in light of last year’s disaster in the Gulf of Mexico, and the imperative now for BP and law enforcement in both the U.S. and U.K. is to decide not the simple question of whether negligence existed and whether it was gross negligence or whatever kind of negligence, but what are the consequences of having this episode occur so quickly following the remedial steps mandated after the Texas City disaster?

This question also points to profound issues regarding the responsibility of government to create a framework within which human welfare is given primacy and to which corporate profit making is subordinate. At a certain point, governments are obligated to penalize or to possibly withdraw the charters of companies that repeatedly endanger human life, break laws or otherwise act out of accordance with human welfare.

After the Gulf Coast disaster in 2010, BP quickly agreed to set up a $20 billion dollar fund for damage claims. And to most of us that sum of money seems like a real penalty – an unfathomable amount – but for oil companies like BP it’s a slap on the wrist. BP and other companies like it have so much money in reserve it’s easy to pay fines or appear to be proactive in a clean-up. In the end, though, they take no real responsibility for the long-term damage - and there is no long-term damage to their business. Unfortunately, nowhere amid all the promises of compensation and change or amid the disbursements of money for damages is there any real promise of safe operations in the future.

What can be done? Shareholders – those with real and involved interest, as well as those invested through trusts and funds – must put pressure on the company to focus on safety and sound environmental practices. There are no legal penalties with teeth. LLC incorporation laws mean that no person is held accountable. Shareholders must act responsibly so the company is forced to act responsibly. And finally, if directors do not have a personal code compelling resignation in cases of extreme malfunction, surely regulators must at some point require the board to acknowledge responsibility and ask for the resignation of appropriate members.

About Bob Monks

Pioneering shareholder activist and corporate governance adviser, Robert AG Monks, has written widely about shareholder rights & responsibility, corporate impact on society and global corporate issues. Bob is the author of Corporate Governance and Power & Accountability (with Nell Minow), The New Global Investors, The Emperor’s Nightingale, Corpocracy and most recently, Corporate Valuation (with Alexandra Lajoux). He was a founder of Institutional Shareholder Services (ISS), now the leading corporate governance consulting firm, and The Corporate Library (now Governance Metrics International). He also founded Lens Governance Advisers and is a shareholder in and advisor to Trucost, the environmental research company. He blogs regularly at ragm.com.

Talkback Readers: What are the best ways to insure companies will act responsibly on ESH? Share your ideas with Talkback!