MBA Follies: The Gulf Oil Spill: BP's Corporate Decision Making and Accountability, Human Culpability and Dereliction, And the Fallacy of Self- Regulation

The April 20, 2010, British Petroleum-Trans Ocean oil spill in the Gulf of Mexico, only 40 miles offshore from Louisiana, has the potential to devastate the economies and sea life of the Gulf shore states and perhaps even impact the eastern United States and eventually Europe. The question of how the spill occurred, or who might be at fault has not yet been determined although there are indications that BP's, or the leasing company Trans Oceanic's, corporate cost-benefit decision making (risk analysis) at the least was a contributing factor that resulted in less expensive, hence weaker, equipment being in place when drilling penetrated a highly pressurized and highly explosive pocket of crude oil-methane gas at almost 20 thousand feet below sea level (15 thousand feet below sea bed).

The pricipal issue of this blog:

Has corporate decision-making wrecked the Gulf region and made it unlivable long term? (As of July 7, 2010, all 5 Gulf states are receiving tar balls on their shores.)

This blogger finds the BP Gulf Oil crisis (it has to be now called a crisis) a fascinating though tragic and sad consequence of a fallacious regulatory philosophy being taught/impplied in some business schools and a tenet of some eco-political thinking - that the best judge and monitorship of business activities are businesses themselves. This blogger's experience in a mid-career executive program at a leading business school was eye opening when he heard this proposed. And, admittedly as the cadence of this credo flowed smoothly across the lecture hall, "self-regulation" of business by business seemed to have an appeal

Corporate accountability, responsibility and “ethics” were presented to the blogger in a bottom line context that appeared to the blogger to be very different from human definitions and in many cases antagonistic to human interests and safety. That experience has stuck in this blogger's mind and has led the blogger to feel corporate America is far off-base in its perception of its social obligations to America and to the local communities where corporations operate. At the root of the matter, this blogger has come to several conclusions about the potential danger of attributing human qualities, and rights to corporations, in contradiction to the appparent current Supreme Court's perspective.

If one thinks about it for only a bit even, the lack of an ethics in the corporate world as humans understand ethics should not be a surprise - a corporation’s existence does not depend on the same essentials as required by humans, even though a corporation is a collection of humans. The corporation has its own set of existential priorities which are different from a human’s: a corporation does not breathe air, consume food, drink water, require houses, schools, etc. …in the normal sense. Corporations are uni-focused on the "bottom line", i.e. profitability, which is whether short or long term is the final measure and assurance of corporate success. Although, it can be argued, a corporation can certainly benefit from the infrastructures humans are motivated to create for themselves such as schools, shopping malls, roads, ports, and more.

Therefore, it is logical that cities, towns and governments tax corporations for using human infrastructures. And it should be logical that humans be constantly on guard against unthinking (rather, uni-focused)corporate damage to these essential human life-constructs, much like having a bear in your living room. Don't blame the bear, blame the person who foolishly believed the bear was deprived of watching the world series on the new flat screen tv.

Corporations do not have human ethical considerations. And this is very confusing to humans (including, this blogger believes, the US Supreme Court). For human safety and well being, this blogger believes corporations should be kept on a tight leash because corporate decision-making involves a different set of life-suppport factors as mentioned above. Thus in the case of oil-shale extraction, the close-focus of energy companies on potential over-use of precious water for steam extraction does not bear consideration from the corporation because once water is depleted, operations can be moved elsewhere, leaving a waterless (or polluted), bare region of gaping strip mines, or canals can be built(singled mindedly for minimum expense) to bring in water from, and hence deplete, other regions.

Likewise, and to the point, the analytical risk decision of Deepwater Horizon to save on drilling expenses by using less expensive (“cheaper” to us humans) safety shut-off equipment was a proper decision in a corpporate context which, if nothing negative had happend, would have meant additional corporate profits and substantial bonuses for human staff members in the decision and appproval chain. Besides, this decision was cemented by a successful corporate strategy concerning relations with Congress (campaign donations) that had resulted in a absurdly low liability cap of only $75 million, a little more than 1%% of BP's 2010 1st quarter profits of $5.6 Billion...and likely a very smaller fraction of BP pre-spill, reserve account. (Note: BP unfortunately but rightly, in the corporate strategy context, will not dip into its pre-spill reserve account but will penalize the dividend account so stock holders will suffer while the corporate body will not be affected. If BP staff are found to be negligent or acted flagrantly will there be stock holder law suits?)

The lesson learned from just these two examples and especially from the most recent oil spill in the Gulf region, is the following set of warnings:
- humans must not expect corporations to have/share human emotions, or needs.
- corporations have different needs than humans, or rather, corporations
do not breathe, eat, drink...as humans do.

- corporations need to be watched and regulated by independent (unbiased) parties on behalf of human safety.

- corporations should never be permitted to “self-regulate” (a ridiculous, non-term in the regulatory world).

The "ABC's" of institutional regulation posit that assured compliance with rules and guidleines to safe business activity is monitoring by independent agents. This is not a belief that business, or any other institution so monitored, has something inherently evil or untrustworthy about them, but only a requirement that goes hand in hand with the belief that regulation's first priority is "prevention" and NOT punishment.

Punishment focuses on the "after" something bad has happened. What is better than that the "Bad" never happened?! This is the rationale for giving priority to preventive regulatory laws guidelines and monitoring.

As an aside, business schools now have impetus to expand their curricula in the management sector by adding coursework on advanced regulatory techniques and decision-making. Techniques such as Morphological Analyses (Fritz Zwicky, Cal tech astrophysicist, 1967) will permit corporate executives to lay out (matrix sheet) and identify the key regulatory-risk factors that affect cost and liability.

But back to BP and Deepwater, regulatory-wise there was no failure of the regulatory system. Rather, human policy makers (Congress)insanely gave over their proper regulatory command and responsibilities to the regulated party, the corporate oil interests. It's just that Congress forgot, or never took the time to realize, or were easily convinced by corporate donations, that corporate needs and decison factors intrinsically compete with regulatory principles which basically exist to protect human safety. In this context there is no more misapplied concept than "self-regulation" which this blogger believes to be one of the most dangerous and fallacious tenets of some "conservative" and pro-business, business schools.

The real cost of of the BP Gulf oil "spill", or fiasco, will far outweigh the dollar value of cleanup because in the human world there are dollar costs and then there are intangible costs of traditions and lifestyle (loss of quality of life).

From a corporate viewpoint, it might not be even worthwhile to spend money attempting to stop and clean up the present damage as these efforts might have to go on forever.

The real question is whether, owing to by-the-book corporate decision-making based on cost-expense-profit considerations, a terrible and perhaps irreversible Pandora's Box has been opened on the Gulf environment and sea product industry. The Gulf region might come to be "sanitized, sterilized, uninhabitable, eliminated" ... for a long, long time.