More than two years after the worst oil disaster in U.S. history, BP agreed, according to the Wall Street Journal, “to accept criminal responsibility for the . . . disaster that killed 11 workers.” What does it mean for an association to “accept criminal responsibility”? The notion seems unwholesomely anthropomorphic, if not chimeric in nature. Taken even just practically, holding a corporation itself criminally responsible may not be make sense, even as a deterrent. I contend that the notion of criminality applies only to human beings, whereas civil charges are suitable for associations including corporations.
The fire at the Deepwater Horizon rig leased by BP in 2010: Beyond a financial impact.
From a corporate perspective, criminality would of course be viewed in financial terms, ideally from the standpoint of the financial welfare of the stockholders. Accordingly, the “criminal responsibility” translates into $4.5 billion in “fines and restitution.” The figure includes nearly $1.3 billion in criminal fines. The settlement includes payments of $2.394 billion to the National Fish and Wildlife Foundation, $350 million to the National Academy of Sciences over five years, and $525 million to the Securities and Exchange Commission for having misled investors by lying to Congress. The fines relate to BP pleading guilty on 11 felony counts of misconduct or neglect of ships officers, one felony count of obstruction of Congress and one misdemeanor count each under the Migratory Bird Treaty Act and the Clean Water Act. The 11 counts related to the workers' deaths are under a provision of the Seaman's Manslaughter Act.
It is the outflow of cash, rather than “pleading guilty” to 11 felony counts of “seaman’s manslaughter” relating to the deaths of the 11 workers onboard the rig and one felony count of obstruction of Congress in providing false information on the rate that oil was gushing from the deep-water well, that “translates” directly into corporate terms. During the three months in which the well was gushing uncontrollably into the Gulf, the U.S. Government relied on BP for accurate information on the rate of output, and the company executives in turn were aware of this reliance and yet chose to lie—misleading investors as well as the U.S. Government. It could be argued that the fines are essentially the same as pleading guilty, but then such fines are generally perceived as qualitatively different than those in the civil cases against BP. It is this qualitative distinction that does not translate into a business calculus other than in terms of the negative financial impact in terms of reduced reputational capital from headlines such as, “Oil Giant to . . . Plead Guilty to Criminal Charges.” What really registers in the bewindowed albeit closed offices at BP is the “to Pay $4.5 Billion” part of the headline.
Fundamentally, a company’s management is geared in its very perspective to the interest of the company, and ideally its stockholders, rather than to the business environment, even when the company has created harm to the latter. How does a corporation even accept responsibility for something like manslaughter or lying? It is not as though an organization has a mind, much less a conscience. A business mindset is more like that of a shark—a feeding machine. It does not make sense to hold a shark responsible; it can only be kept out of Sydney’s swimming areas, for example, by nets.
Organizations are basically the people who run and operate them. “Company” is actually a plural noun, as in “a company of men.” Accordingly, the individuals who formulate, sign off on, and implement a policy, procedure or decision that results in harm to others (or the environment) can and should be held criminally responsible. Put another way, human beings rather than associations can feel punishment and thus can be subject to it.
Fortunately, besides the criminal settlement, “three former BP employees were charged by a federal grand jury with felonies in the incident, two of them for allegedly failing to carry out a critical safety test properly” and “to alert onshore engineers to problems with the drilling.” The two oil well supervisors were charged with 11 counts of “seaman’s manslaughter,” 11 counts of involuntary manslaughter and one violation of the Clean Water Act. The third, “David Rainey, BP’s former head of Gulf of Mexico exploration, who took a lead role in the disaster response, was charged with obstruction of Congress and making false statements to a law enforcement officer for allegedly lying about how much crude was spewing from the well.” Unless decided on his own to lie, others at BP should have been charged criminally too.
The fact that criminal charges were made against particular persons at BP is extremely important, both in itself (i.e., justice) and as a deterrent. Two years after the disaster, BP was still the largest oil producer in the Gulf of Mexico. Additionally, the oil giant was exploring for oil and gas in Texas, Oklahoma, Arkansas, Louisiana, and Ohio. The company would likely have to send executives to the Hill to testify in the future, and those executives should know that they could go to prison for deciding to lie or even “just following orders” to mislead Congress.
As for the criminal fines, they may actually be insufficient financially, given the wealth of the oil giant. The $4.5 billion is merely 17% of the company's profit in 2011 alone. To cover most of the cost of the criminal fines, the company simply sold its Texas City, Texas refinery—where fifteen people had been killed in an accident in 2005—for $2.5 billion. Meanwhile, the multinational company was able to maintain “strategically important” refineries in Washington, Ohio and Indiana in the U.S. alone. Although “leaner,” the well-publicized company might even benefit in terms of public relations in the future from being rid of the sordid refinery in Texas.
To be sure, the civil claims pending at the time could include up to $20 billion under the Clean Water Act if the company is held grossly negligent (i.e., “conscious and voluntary disregard”). Additionally, the company has spent about $14 billion on spill response and clean-up and more than $9 billion in claims to business and individuals. A related claim was up to $7.8 billion when BP announced the criminal settlement in late 2012. Also, Louisiana, Mississippi, and Florida were suing BP for civil fines. Clearly, these fines dwarf the monetary element of criminality. I contend that the other elements of criminality do not register at the company level.
In spite of having agreed to have BP plead guilty, the company’s executives did not seem particularly interested in admitting guilt. "We believe this resolution is in the best interest of BP and its shareholders," said Carl-Henric Svanberg, BP's Chairman. "It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims and to contest allegations of gross negligence in those cases." This is hardly an acknowledgement of criminal guilt. Rather, it is a statement of how the settlement benefits the company! This is like boy sent to his room as a punishment bragging about being able to play video-games from his bed. Surely his mother hearing this would wonder whether she had in fact just punished her son or rewarded him for bad behavior.
From BP’s standpoint, the decision to plead guilty on criminal charges was done in the best interest of the shareholders by reducing legal risk. This is not to accept and acknowledge being blameworthy in a criminal sense. Accordingly, on the day in which the criminal settlement was announced, shares of BP actually rose 14 cents, ending the day at $40.30. Relatedly, the Journal reports that analysts “reacted positively to BP’s settlement of its criminal liability.” There is no sense in this reaction of how you or I might react to a person who “pleads guilty to criminal charges.” We would not exactly buy stock in that person. A company is different—it is a financial machine wherein a settlement that provides a ceiling on the cash to be spent translates as “limiting legal risk.”
In my view, the various civil fines are what must have registered at the company level at BP because of the sheer amount of cash involved. It can be asked from this case whether it even makes sense to hold a company criminally guilty. “Fighting crime” could be more focused against the persons involved—expanding what counts as who is “in the know” on a given policy or a decision that harms others—while the monetary aspect to a company is in civil crimes.
Alternatively, if a corporation truly is to be held criminally guilty in a given country, then it would seem to me that “going to prison” would mean that the company could not do business inside or even with that country or its businesses during the length of its sentence. Lest it be answered that an oil giant would hardly agree to a settlement under those terms, I answer that criminals don’t necessarily agree to plead guilty and there is, after all, the alternative of a criminal trial and verdict. A company being found guilty rather than agreeing to plead guilty deprives it of its share of control while still implying the ethical obligation to admit rather than deny the guilt implied in the verdict. In short, either being criminally guilty should mean something besides reducing legal risk (i.e., something bad ) or concept should not apply at all—to companies, that is.
Michael Kunzelman, “BP Oil Spill Settlement Announced,” The Huffington Post, November 15, 2012.
Tom Fowler, “BP Slapped With Record Fine,” The Wall Street Journal, November 16, 2012.
Angel Gonzalez and Daniel Gilbert, “Accident Fails to Dent British Firm’s Ambitions in U.S.,” The Wall Street Journal, November 16, 2012.