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Does Oil Spill Fine Change BP's "Profit Over Prudence" Culture?

Posted by Sheila Shayon on November 16, 2012 02:12 PM

It's understandable that the record-breaking sum that BP will be paying out — $4.5 billion in fines and other payments — as a result of the Department of Justice settlement over the 2012 Deepwater Horizon accident, oil spill and response raised eyebrows. While two employees are being charged wth manslaughter, the company also pled guilty to 14 criminal charges in connection with the cataclysmic oil spill in the Gulf of Mexico two years ago, and admitted to criminal conduct and deliberately misreporting the impact of the spill.

It's a record-breaking sum, but as a reader noted on our story, it's "a drop in the barrel" for the oil and gas giant. Even the fact that the DOJ investigation is ongoing, and BP will be subject to additional including federal civil claims and claims for damages to natural resources and fines under the Clean Water Act, with potential fines of up to $21 billion, the brand is more than prepared to absorb the financial hit.

The bigger question is how much, if at all, things have changed in the corporate culture that led to the accident, and led to harsh criticism over its handling of the accident. As Tom Zara, Interbrand's global Corporate Citizenship practice leader, comments, the DOJ penalty is directed at the "ethical bone structure" that led to the disaster, and the loss of 11 lives. "Notoriety of criminality isn’t the death knell of a brand, but corruption of culture will kill the brand."

The Justice Department press release detailing BP's guilty plea doesn't mince words on that front:

The explosion of the rig was a disaster that resulted from BP’s culture of privileging profit over prudence,” said Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division. “We hope that BP's acknowledgment of its misconduct – through its agreement to plead guilty to 11 counts of felony manslaughter – brings some measure of justice to the family members of the people who died onboard the rig.”

“The oil spill was catastrophic for the environment, but by hiding its severity BP also harmed another constituency – its own shareholders and the investing public who are entitled to transparency, accuracy and completeness of company information, particularly in times of crisis,” said Robert Khuzami, Director of the U.S. Securities and Exchange Commission’s (SEC) Division of Enforcement. “Good corporate citizenship and responsible crisis management means that a company can’t hide critical information simply because it fears the backlash.”

“We believe this resolution is in the best interest of BP and its shareholders,” said Carl-Henric Svanberg, BP’s Chairman, in the company's press release on the news. “It removes two significant legal risks and allows us to vigorously defend the company against the remaining civil claims. We are committed to building a safer, stronger BP. This work did not begin with the Deepwater Horizon accident and will not end with today’s resolution.”

As part of its DOJ agreement, BP will appoint a safety and risk-management in the Gulf of Mexico and an ethics monitor to examine the brand’s code of conduct, implementation and enforcement. It has already organized its management to tighten oversight on safety, transparency and how it responds — i.e., how it plans to be a better corporate citizen going forward. It's on that measure the company must be judged, Zara says. “Tenets that guide behavior must be in place with a commitment to safety, accountability and responsibility,” he comments. “The answer people are really looking for is to what degree have they demonstrated these key values.”

It's had two years to start implementing these measures. So how's it doing? BP's recent third quarter earnings call with analyst made passing reference to a "signficant change program addressing safety and reliability," while a 10-point plan lists safety first. It spent more time talking about how it's planning to drive more profits (it was an earnings call, after all) and its "integrity spend" — which has nothing to do with investing in its own integrity.

Within hours of yesterday's homepage announcement of the Justice Department agreement, BP's homepage had reverted (oddly) to what you see below — a graphic promoting an earlier press release that a DOJ ruling was forthcoming. As of this writing, it has reverted to the "Agreement over charges" DOJ graphic once again.

Back in February, the second-largest gas marketer in the U.S. made face-saving efforts by relaunching its ad campaign for BP gasoline with Invigorate, which cleans your engine while you drive and improves the long-term health of a car, in “the company’s first new fuels-related television commercials since 2009.” BP was also a sponsor at the London 2012 Summer Olympics, supporting U.S. and British athletes.

Here’s a recap of the timeline of BP’s and Tranocean Ltd’s (who owned and licensed the rig) actions:

April 30, 2010 - Ten days after the explosion, then BP CEO Tony Hayward said the company takes full responsibility and will pay legitimate claims and the costs of cleanup.

June 22 - Hayward gives day-to-day control of spill operations to Managing Director Bob Dudley, after commenting he would like his life back, and a groundswell of criticism that resulted in Dudley being elevated to CEO.

Sept. 19 - BP finally seals the leaking well.

Jan. 5, 2011 - White House oil spill commission accuses BP and partners of cost-cutting decisions that ultimately contributed to the accident.

April 20 - BP sues Transocean for $40 billion in damages and costs and Cameron International Corp for negligence, citing a blowout preventer made by Cameron failed to avert the catastrophe. 

Sept. 14 - U.S. federal investigators from the Coast Guard and Bureau of Ocean Energy Management put blame for 21 of 35 contributing causes on BP, sharing blame for eight more.

May 2, 2012 - BP wins preliminary court approval of an estimated $7.8 billion settlement to resolve more than 100,000 claims by individuals and businesses stemming from the spill. 

July 6 - President Barack Obama signs the Restore Act which directs that 80% of Clean Water Act penalties paid by BP be placed in a new trust fund for restoration efforts in the five coastal states damaged by the spill: Louisiana, Alabama, Mississippi, Florida and Texas.

Oct. 26 - A federal judge delays the trial to February 2013 to determine liability from the spill due to the pending $7.8 billion settlement with private plaintiffs.

Oct. 30 - BP announced a return to profitability in the Q3, 2012, and increased its dividend, while selling assets to raise funds to pay for costs related to the oil spill.

Below, FT's take on this latest step in BP's US Deepwater Horizon settlement:

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