How to Prevent Oil Spills
BP held its annual meeting on last week, and, all things considered, the company’s shareholders had much to be happy about. Yes, a small percentage voted against the $6.8 million pay package that the board awarded Bob Dudley, the chief executive. And there were plenty of protesters in attendance, including angry Gulf Coast residents and climate change activists.
Mainly, though, BP shareholders had to be pleased with the progress the company has made since the Deepwater Horizon disaster. Two years after the spill that cost 11 lives and saw millions of gallons of crude poured into the Gulf of Mexico, the company unveiled 2011 net profits of close to $24 billion.
And that’s after spending some $22 billion settling claims and paying cleanup costs. “We are fully back to work in the Gulf of Mexico,” Dudley announced. To be sure, there are still some lawsuits to resolve, brought by several gulf states as well as the federal government. And there is also a criminal investigation, which a Justice Department representative told me was ‘very much ongoing.’ But not to worry. In addition to the $22 billion it has already spent, BP has another $15.2 billion set aside to cover future fines and payments. No government settlement will come close to that amount.
As for the criminal investigation, it will likely result in a deal in which BP agrees to plead guilty and pays yet more fines , while no actual human being goes to jail. Money solves everything, doesn’t it? It always has before. As Abrahm Lustgarten brilliantly recounts in his new book, ‘Run to Failure: BP and the Making of the Deepwater Horizon Disaster,’ time after time over the past 15 years, BP put profits over safety and created dangerous conditions for its workers, which resulted in serious industrial accidents that brought criminal investigations. Every time, BP wiggled out of trouble by paying money and promising to do better and then went right back to its recidivist ways.
The implicit message of Lustgarten’s book, which recounts this history in infuriating detail, is that for a multinational like BP, fines and settlements are meaningless punishments. Even a criminal conviction has very little meaning for a faceless corporation. After all, you can’t throw a company in prison. Take, for instance, the worst of the accidents preceding the Deepwater Horizon explosion. It took place in 2005, at a BPowned refinery in Texas City, when an explosion killed 15 workers. Lustgarten’s reporting for ProPublica makes it abundantly clear that the problems at the refinery were well known.
Necessary maintenance was deferred. Warnings signs were ignored. Managers would plead for money to improve the safety of the plant only to have their budgets savagely cut. Top management in London turned a blind eye to reports recounting problems. Then, when the inevitable occurred, BP at first blamed it on ‘operator error.’ John Browne, who was then its chief executive and the man most responsible for creating BP’s culture of putting profits over safety insisted that the accident, like all the other BP accidents, was just a matter of being unlucky. Lots of people knew better, including a handful of federal investigators who had been tracking the company for years.
Yet, in the end, BP wound up paying $2.1 billion, most of it to compensate victims and agreed to a felony conviction. These punishments did nothing to change the company. Barely a year later, a BP-owned pipeline in Alaska ruptured, causing a serious oil spill.
After that one, BP agreed to plead to a misdemeanor and paid a fine. Lustgarten found government documents suggesting that a number of BP executives were investigated by prosecutors. But nothing ever came of those investigations.
I have argued in the past, mainly in the context of the financial crisis, that the country has been poorly served by the Justice Department’s unwillingness to hold to account big shots like Angelo Mozilo, the former chief executive of Countrywide, whose companies’ illegal practices helped lead us to the brink of financial apocalypse. It has sent a terrible message that there are two kinds of justice: one for the rich and powerful, and another for everybody else. But there is another reason corporate executives need to be prosecuted when corporate crimes take place. It sends a signal to every other executive about what is and is not acceptable behaviour.
The threat of prison can change a culture faster and more effectively than even the heftiest fine. If, after the Texas City explosion, one BP executive or more had been prosecuted, it seems to me quite likely that the Deepwater Horizon accident would never have happened. A prison sentence would have done the thing that all those fines never did: force the company to begin paying attention to safety. Prison is what makes the difference. Otherwise, it’s only money.