Corporate risk management in America changed from the need to protect the company to the need to protect the executives and Wall Street. The problem with this change, which took place during the 1980s, is that in the end everyone loses, especially the nation. BP may be a British company, but it has many subsidiaries here and is quoted on the U.S. stock exchange. It is an oil company, one of the Big 5, and anything they do reflects well or badly on the other companies: especially poorly when there is a disaster.
When PanAm went bust, it was not the Lockerbie disaster that caused their demise. It was corporate mismanagement of a situation caused by terrorists, poor PR and, above all, a seeming disdain for the passengers and those killed on the ground over the interests of the company.
PanAm’s top executives all had golden parachutes. The head of PR took his $8 million ’chute in 1987 and swanned off to retirement in Bermuda. What did he care if management left the sinking ship (which they had piloted onto the rocks)? What did any of the directors care if the pension fund of employees was raided to fill the financial void for the Wall Street honchos?
BP is going bust. The management there is to blame. They may not go bust today or tomorrow, and they certainly have plenty of assets (in banks and underground oil), but they also have huge liabilities brought about by the incompetency of the upper management. Seeing the three oilmen testifying before Congress reminded me of the Three Stooges — it was his fault, no it was his, no it was the first guy’s fault — slap, smack, bop, yada yada yada. They have no clue.
It doesn’t matter if, by the time this makes it to print, they have capped the leaking oil (let’s hope). What matters is that upper management is so out of touch with reality, they are so cushioned, so coddled, they have no perspective left for the little things that can bring down a company, no exposure to the minutiae that needs to be cared for to preserve the company, jobs and profits. In short, they are outsiders in their own company.
Let’s take just one person there, CEO Tony Hayward. He’s a nice man, honest but made myopic by his lifestyle and money. Announced in March this year, his BP payment is considered small, just over $6 million, up 41percent from the year before.
OK, let’s make believe this sounds pretty good to you and you’d like to be a CEO. Now what you should remember is that this is a 12-hour-a-day job, six days a week. In return, you get stock options (discounted shares, sometimes 20 percent of real cost), 24-hour-a-day servants at your beck and call, drivers, secretaries, assistants, private planes, limos, food, unlimited restaurant expenses, never having to stand in line anywhere (including the DMV — think of it!), no public transportation ever and full living accommodation expenses (apartments, housing allowances, moving fees, red carpet service). In short, you are the company’s baby and they breastfeed you anything you need to keep you working and happy.
So, what do you do with that money anyway? Assuming 40 percent tax (well, we know that’s not true, but let’s assume), you still have $720 to spend for every waking hour of every day, 52 weeks a year. That’s $70,000 a week. Gee, you have to wait three weeks to buy a Bentley. But why buy a Bentley when you have a BP limo anyway? And a private plane? Nope, don’t need one of those, either. How about a house? But why, when you have company accommodation?
And what about the stock options? Given to you on Jan. 31, you could cash them in the next day and make another couple of tens of millions. So what if you have to pay the government capital gains taxes? It’s all profit, not really salary, the way we consider payday.
So, how does Hayward ever get to know about, care about, his company drilling the ocean floor, 5,000 feet down with blow-out equipment only rated (certified) to 1,500 feet? How does he get to care or know about the drilling company, Transocean, a company they hired to drill a BP well, flying a BP flag with no BP employees to report to him? Why would he instruct BP to care about an oil spill except to somehow recover the oil wellhead, recapture the oil, maximize profits?
If it all goes sour, he’ll have his money, he’ll have a golden parachute and he can retire. There is no incentive, there is no reality check to manage the risk of such disasters until after they happen. Then their answer is to guess, unplanned errors piling on top of one another, while they continue their lifestyle. They are totally insulated, unprepared, totally immune to any consequence except, perhaps, a stoppage of salary if they are fired.
The problem with the Gulf oil spill, perhaps the worst ever anywhere, is that it was preventable, yes, but not preventable at all with no real risk management in place in American business any more — none in place that is beyond risk managing the safety of the executives.
Peter Riva, formerly of Amenia Union, lives in New Mexico.
