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Monday, March 7, 2011

Business & Society: BP Clipped Societal Norms

In Senate testimony on May 11th, 2010,  the three companies did their best to point the finger at each other, with the result that neither BP, Transocean or Halliburton would admit, undoubtedly for liability purposes, any contributory role. In the midst of such liability evasion, those of us in the wider society want to get to the bottom of the accident so future such accidents can be prevented. In pointing the finger at the other guy while ignoring one’s own role, the managers of the three companies are added insult to injury.  The BP executive did not mention that several days before the explosion on the Deepwater Horizon oil rig, BP officials chose, partly for financial reasons, to use a type of casing for the well that the company knew was the riskier of two options, according to a BP document. Specifically, BP managers opted for a “long string” pipe for the well rather than a liner tieback that would have cost $7 million to $10 million but would have added barriers to prevent gas from reaching the surface.  BP managers were not unaware of this risk. The concern with the method BP chose, the document said, was that if the cement around the casing pipe did not seal properly, gases could leak all the way to the wellhead, where only a single seal would serve as a barrier. As another instance of cutting corners to save time and money, BP engineers used just six “centralizers,” rather than twenty-one as recommended by Halliburton, to stabilize the well before cementing it. According to an April 16, 2010 email from BP’s well team leader, the problem was that the extra centralizers would have taken ten hours to install. Another official wrote of the decision: “Who cares, it’s done, end of story, will probably be fine.”   BP managers also decided not to take twelve hours to completely circulate the heavy drilling fluid in the well that would have enabled detection and removal of any leaking gas. BP also skipped a test to determine if the cement had properly bonded to the well and rock formations. A petroleum engineer independent of BP told a congressional committee that the decision was “horribly negligent.”

Workers from the rig and company officials said that hours before the explosion, gases were leaking through the cement, which had been set in place by the oil services contractor, Halliburton, which Dick Cheney once ran. But it was not merely the casing and cement that were problematic. On 60 Minutes on May 16, 2010, a worker who was on the rig when the accident happened spoke of a BP manager overruling a Transocean manager to cut corners, such as beginning to drain the pressure fluid from the well before the third “cork” was installed.  The methane was able to reach the rig’s engines because there was insufficient pressure to keep the gas down in the well.  Also, a BP manager had earlier ignored the worker’s warning that there were shreds of rubber coming up in the drilling–the rubber being from the device that was supposed to take pressure readings (e.g., whether there is gas in the well).  Nevertheless, the BP manager who testified before the Senate blamed Transocean and Halliburton managers, and on the morning after the 60 Minutes interview BP’s COO said he was just focused on the clean-up and knew nothing of such “details” even though his specialty was in development and exploration. Both in cutting corners and in ignoring his job description, BP’s COO demonstrates a willful disregard for societal norms wherein society itself is protected and accountability is accepted.  Sadly, this attitude is not uncommon in the business world.

Perhaps as business operations expand in businesses too big to fail, the societal dangers in the attitude are magnified because more damage can result. In other words, it becomes increasingly dangerous to a society to allow such an attitude to exist.  Where societal norms are ignored by business managers, perhaps the societal norm that allows for their authority should be rescinded as well. This is a social contract reading of society, wherein if one side of the norms are broken, the other side is deemed invalid as well.  The problem is that social contracts unravel rather slowly or incrementally, such that a dangerous attitude can be allowed to remain in a position of authority.  It is worth investigating whether violating societal norms is actually detrimental to a company’s bottom line. 

To the extent that a social contract has a certain inertia, it may be that the bottom line can survive long enough to allow the attitude to survive and perhaps even prosper.   These matters are distinct from questions of justification, which lie in the field of business ethics, and from those of whether more government regulation is needed, which lie in the field of business and government. We can define corporate social responsibility as meeting the general expectation in a society that people admit to their wrong-doing or mistakes and make amends.  This is different from the ethical question of whether people should admit to their wrong-doing or mistakes and if so why.  It is also distinct from the question of the proper relationship between business and government.  Business and society involves the relationship of business interest and societal norms.  To treat the latter (or the former, for that matter) as ethical requires ethical justification, which is more than simply aligning business and societal norms.  In other words, a societal norm is not in itself ethically justifying (consider Nazi Germany as a case in point).  With these distinctions in mind, I turn now to the field of business and society.

I contend that the people at BP (and Halliburton) admitting to their role and paying for economic damages incurred by third parties would be more important than BP’s charitable giving, even if some people in the wider society may have let BP off the hook for the accident if the company’s managers had decided to announce a new philanthropical project unrelated to the accident. Working on another society problem does not make up for having not admitted to BP managers' negligence.  Culpability, on other words. cannot be obviated or transferred so easily.

Too often, business managers use the term “responsibility” even as they are evading it for financial reasons. BP initially estimated the daily output of the leaks at between one and fourteen thousand barrels a day; BP picked the low end-point because the amount of fines the company would pay was tied to the volume. That the company managers were misleading the wider society didn’t seem to factor into their financial decision. As a result, the anticipated damage to the Gulf (and the world) was not sufficiently appreciated in the wider society. The convenient use of  the term “responsibility” can be gleemed from the Senate testamony of Lamar McKay of BP.  “As a responsible party under the Oil Pollution Act,” he said, ”we will carry out our responsibilities.” But he quickly added that Transocean “had responsibility for the safety of the drilling operations.”  That is to say, he acknowledged the obligation to be responsible for his mistakes while conveniently ignoring the mistakes made at his company. By pointing the finger at people at another company, McKay was contradicting his own asseveration on being responsible.  It is like he was lying even as he insisted that people shouldn’t lie.

Pointing the finger is childish, even if it is done for financial reasons. Steven L. Newman, president and chief executive of Transocean, did no better that the BP executive when he said that the accident had to have arisen from elements of the work done by other companies. “Were all appropriate tests run on the cement and the casing?” he asked, apparently implicating Halliburton. Tim Probert of Halliburton said in turn that all work on the casing by his company was carried out “as directed by the well owner,” meaning BP.  Suggesting that the men act like adults and take responsibility for what their coworkers had done (or failed to d0), the ranking Republican minority member on the Senate Energy and Natural Resources Committee, Lisa Murkowski of Alaska, told them to stop the finger-pointing. “I would suggest to all three of you that we are all in this together,” she said. Notice that she is pointing to a societal norm, rather than using an ethical rationale. She is essentially asking the executives to step up to societal standards. Unfortunately, there was no sign that the three boys would take responsibility for their actions, as they continued on, still oriented to the other guy.  The cost to society includes a more difficult route to uncovering the cause of the accident and possible accidents to come from BP. The company’s clean-up efforts do not address the cause of the accident; the spending does not go far enough. In other words, BP can’t spend its way out of it…or can it?  Are there societal norms that allow it to suffice?  My question is this: why hasn’t the social contract unravelled that has allowed the managers at BP to continue to hold their jobs (and BP to remain in business)?  Is economic liberty at play here–society saying that there is room in such liberty for a shirking attitude?

“Congress Says BP Crew Focused on Costs,” The Wall Street Journal,  June 15, 2010, p. A5.