Archive for May, 2010

Federalize BP

Friday, May 28th, 2010

President Obama’s declaration that the federal government is in charge of the response to the oil disaster in the Gulf of Mexico is apparently meant to deflect Katrina comparisons and show that his administration is fully engaged. With that p.r. mission accomplished, Obama now needs to turn to the question of what to do about BP.

As a helpful Congressional Research Service report points out, the Oil Pollution Act of 1990 gives the federal government three options: monitor the efforts of the spiller, direct the efforts of the spiller, or do the clean-up itself. So far, the Obama Administration has followed the second path and resisted growing pressure to “federalize” the response.

This was said to be necessary because the feds do not have the technical expertise to handle a deepwater leak. As Coast Guard Adm. Thad Allen, the National Incident Commander, put it: “To push BP out of the way would raise the question of: Replace them with what.”

The idea that the government is completely dependent on BP to stop the leak is a dismaying thought. But even if it’s true, it no longer applies once the gusher is brought under control. When the center of attention shifts from 9,000 feet below the surface to the clean-up, there is no reason why BP should continue to run things.

The simple fact is that the company cannot be trusted. As Obama himself noted, the company’s interests diverge from those of the public when it comes to assessing the true extent of the damage and deciding what is necessary in the way of remediation. Keep in mind that BP’s total liability will be determined at least in part by the final estimate of how much oil its screw-ups caused to be released into the ocean. It has every incentive to obscure the full magnitude of the catastrophe.

The company’s motivation in employing massive quantities of the controversial chemical Corexit may have had more to do with dispersing evidence of the spill than with helping the ecosystem of the gulf recover. BP had to be pressured to back off from a plan to have clean-up workers sign confidentiality agreements to prevent them from disclosing what they observed. The company resisted making public the live video feed showing the full force of the oil spewing out of the wrecked well and then delayed making a high-definition version of that video available to federal investigators.

For BP, job one is now not clean-up but cover-up. Allowing it to manage the ongoing response would be akin to allowing the prime suspect in a mass murder to assist in processing the crime scene.

Taking operational control of the clean-up away from BP should be a no-brainer, but it is not enough. This is a company that has repeatedly shown itself to be reckless about safety precautions. The gulf disaster comes on the heels of previous incidents—a 2005 explosion at a refinery in Texas that killed 15 workers and a 2006 series of oil spills at its operations in the Alaskan tundra—in connection with which it pleaded guilty to criminal charges and paid large fines. It was also put on probation that has not yet expired.

An individual who violates probation can be deprived of liberty through imprisonment. A giant corporation that violates its probation—as BP undoubtedly has done by breaking various federal and state laws in its actions precipitating the Deepwater Horizon explosion—cannot be put behind bars, but it can be deprived of freedom of action.

Federal sentencing guidelines (p.534) allow probation officers to monitor the finances of a business or other organization under their supervision. In BP’s case, the issue is safety. One way to ensure that the company acts responsibly is to station inspectors inside all of its U.S. operations (at BP’s expense) to oversee any operational decision that could impact the safety of workers and the environment. Those inspectors would also make it harder for the company to cover up the full extent of what it has done to the Gulf Region.

In other words, the Obama Administration should federalize not only the Gulf of Mexico clean-up but BP itself. That would show that the government really is in charge until we can be sure that the oil giant is no longer a public menace.

Punishments that Fit BP’s Crimes

Friday, May 21st, 2010

Few things enrage the American public more than hearing about a criminal who is given a light sentence and then commits another offense. This scenario is not limited to murderers and rapists. Corporations can also be recidivists.

We’re currently contending with such a culprit in the (corporate) person of BP. The oil giant’s apparent negligence in connection with the ongoing disaster in the Gulf of Mexico comes on the heels of two previous major accidents in which the company was found culpable: a 2005 explosion at a refinery in Texas that killed 15 workers and a 2006 series of oil spills at its operations in the Alaskan tundra.

Those earlier cases are not just another blot on BP’s blemished track record. In both instances the company was compelled to plead guilty to a criminal charge and not only heavily fined but also put on probation for three years. On a single day in October 2007, the U.S. Justice Department announced these plea agreements along with the resolution of another criminal case in which BP was charged with manipulation of the market for propane. In the latter case, prosecution of BP was deferred on the condition that the company pay penalties of more than $300 million and be subjected to an independent monitor for three years.

In other words, at the time that BP engaged in behavior that contributed to the Gulf catastrophe, it was under the supervision of federal authorities for three different reasons. Although the terms of the probation and independent monitor agreements refer to the parts of BP’s business involved in the offenses, federal law (18 USC Section 3563) requires that “a defendant not commit another Federal, State, or local crime during the term of probation.”

Given the distinct possibility that BP will face new criminal charges, the question arises: what would be a suitable punishment? When an individual violates his or her probation by committing a new offense, the usual result is imprisonment. Federal sentencing guidelines say that when an organizational defendant commits such a violation, the remedy is to extend the period of the probation.

That hardly seems adequate in the case of an egregious repeat offender such as BP. Just as an individual loses certain rights when imprisoned, so should a corporate probation violator face serious consequences. Here are some possibilities:

  • Ineligibility for federal contracts. BP is among the top 30 federal contractors. That privilege should be suspended.
  • Ineligibility for federal drilling leases. BP has shown itself to be reckless when it comes to drilling. It should no longer be able to obtain leases to drill on public lands or in public waters.
  • Ineligibility for federal tax incentives. Like other oil companies, BP receives a variety of special tax advantages such as writeoffs of intangible drilling costs. It should be denied such benefits.
  • Suspension of the right to lobby. According to the Open Secrets database, BP spent nearly $16 million last year on federal lobbying. As a probation violator, it should be barred from trying to influence public policy.
  • Moratorium on image-burnishing advertisements. As the Gulf debacle continues, BP is spending heavily on advertising to convey the message that it is doing everything in its power to address the problem. Once it is designated a probation violator, it should be barred from that sort of crisis marketing.
  • Public admission of fault. At the point that BP pleads guilty to another criminal offense, an appropriate penalty might be to force it to take the money now being spent to repair its image and use it to run ads admitting its misbehavior. Nothing would be more satisfying than hearing BP admit that its purported devotion to corporate social responsibility has been a sham.

No doubt there are legal barriers to such measures, but we need to go beyond the current wrist-slapping approach to the punishment of corporate crime and create deterrents that once and for all get the likes of BP to take safety and environmental regulations seriously.

Corporate Social Irresponsibility

Friday, May 14th, 2010

The catastrophic Exxon Valdez oil spill of 1989 gave rise to the modern corporate social responsibility movement; the current spill in the Gulf of Mexico marks its collapse.

The past two decades have been an experiment in corporate behavior modification. An array of well-intentioned organizations such as CERES promoted the idea that large companies could be made to do the right thing by getting them to sign voluntary codes of conduct and adopt other seemingly enlightened policies on environmental and social issues.

At first there was resistance, but big business soon realized the advantages of projecting an ethical image: So much so that corporate social responsibility (known widely as CSR) is now used as a selling point by many firms. Chevron, for example, has an ad campaign with the tagline “Will You Join Us” that is apparently meant to convey the idea that the oil giant is in the vanguard of efforts to save the earth.

What also made CSR appealing to corporations was the recognition that it could serve as a buffer against aggressive regulation. While CSR proponents in the non-profit sector were usually not pursuing a deregulatory agenda, the image of companies’ agreeing to act virtuously conveyed the message that strong government intervention was unnecessary. CSR thus dovetails with the efforts of corporations and their allies to undermine formal oversight of business activities. This is what General Electric was up to when it ran its Ecoimagination ads while lobbying to weaken air pollution rules governing the locomotives it makes.

Recent events put into question the meaning of a commitment to CSR. The company at the center of the Gulf oil disaster, BP, has long promoted itself as being socially responsible. A decade ago it adopted a sunburst logo, acknowledged that global warming was a problem and claimed to be going “beyond petroleum” by investing (modestly) in renewable energy sources.  What did all that social responsibility mean if the company could still, as the emerging evidence suggests, cut corners on safety in one of its riskiest activities—deepwater drilling? And how responsible is it for BP to join with rig owner Transocean and contractor Halliburton in pointing fingers at one another in an apparent attempt to diffuse liability?

BP is hardly unique in violating its self-professed “high standards.” This year has also seen the moral implosion of Toyota, another darling of the CSR world. It was only months after the Prius producer was chosen for Ethisphere’s list of “the world’s most ethical companies” that it came to light that Toyota had failed to notify regulators or the public about its defective gas pedals.

Goldman Sachs, widely despised these days for unscrupulous behavior during the financial meltdown, was a CSR pioneer in the investment banking world. In 2005 it was the first Wall Street firm to adopt a comprehensive environmental policy (after being pressured by groups such as Rainforest Action Network), and it established a think tank called the Center for Environmental Markets.

Even Massey Energy, which has remained defiant in the face of charges that a preoccupation with profit over safety led to the deaths of 29 coal miners in a recent explosion, publishes an annual CSR report.

When the members of a corporate rogues’ gallery such as this all profess to be practitioners of CSR, the concept loses much of its legitimacy. The best that can be said is that these companies may behave well in some respects while screwing up royally in others—the way that Wal-Mart is supposedly in the forefront of environmental reform while retaining its Neanderthal labor relations policies. Selective ethics, however, should be no more tolerable for corporations than it is for people.

Heaven forbid that we violate the free speech rights of CSR hypocrites, but there should be some mechanism—perhaps truth-in-image-advertising laws—to curb the ability of corporations to go on deceiving the public.

Bad Karma in the Gulf of Mexico Oil Disaster

Friday, May 7th, 2010

British Petroleum is, rightfully, taking a lot of grief for the massive oil spill in the Gulf of Mexico, but we should save some of our vituperation for Transocean Ltd., the company that leased the ill-fated Deepwater Horizon drilling rig to BP. Transocean is no innocent bystander in this matter. It presumably has some responsibility for the safety condition of the rig, which its employees helped operate (nine of them died in the April 20 explosion).

Transocean also brings some bad karma to the situation. The company, the world’s largest offshore drilling contractor, is the result of a long series of corporate mergers and acquisitions dating back decades. One of the firms that went into that mix was Sedco, which was founded in 1947 as Southeastern Drilling Company by Bill Clements, who would decades later become a conservative Republican governor of Texas.

In 1979 a Sedco rig in the Gulf of Mexico leased to a Mexican oil company experienced a blowout, resulting in what was at the time the worst oil spill the world had ever seen. As he surveyed the oil-fouled beaches of the Texas coast, Gov. Clements made the memorable remarks: “There’s no use in crying over spilled milk. Let’s don’t get excited about this thing” (Washington Post 9/11/1979).

At the time, Sedco was being run by Clements’s son, and the family controlled the company’s stock. The federal government sued Sedco over the spill, claiming that the rig was unseaworthy and its crew was not properly trained. The feds sought about $12 million in damages, but Sedco drove a hard bargain and got away with paying the government only $2 million. It paid about the same amount to settle lawsuits filed by fishermen, resorts and other Gulf businesses. Sedco was sold in 1984 to oil services giant Schlumberger, which transferred its offshore drilling operations to what was then known as Transocean Offshore in 1999.

In 2000 an eight-ton anchor that accidentally fell from a Transocean rig in the Gulf of Mexico ruptured an underwater pipeline, causing a spill of nearly 100,000 gallons of oil. In 2003 a fire broke out on a company rig off the Texas coast, killing one worker and injuring several others. As has been reported in recent days, a series of fatal accidents at company operations last year prompted the company to cancel executive bonuses.  It’s also come out that in 2005 a Transocean rig in the North Sea had been cited by the UK’s Health and Safety Executive for a problem similar to what apparently caused the Gulf accident.

Safety is not the only blemish on Transocean’s record. It is one of those companies that engaged in what is euphemistically called corporate inversion—moving one’s legal headquarters overseas to avoid U.S. taxes. Transocean first moved its registration to the Cayman Islands in 1999 and then to Switzerland in 2008. It kept its physical headquarters in Houston, though last year it moved some of its top officers to Switzerland to be able to claim that its principal executive offices were there.

In addition to skirting U.S. taxes, Transocean has allegedly tried to avoid paying its fair share in several countries where its subsidiaries operate. The company’s 10-K annual report admits that it has been assessed additional amounts by tax authorities in Brazil and that it is the subject of civil and criminal tax investigations in Norway.

In 2007 there were reports that Transocean was among a group of oil services firms being investigated for violations of the Foreign Corrupt Practices Act in connection with alleged payoffs to customs officials in Nigeria. No charges have been filed.

An army of lawyers will be arguing over the relative responsibility of the various parties in the Gulf spill for a long time to come. But one thing is clear: Transocean, like BP, brought a dubious legacy to this tragic situation.