BP Oil Spill: A Company Out of Its Depth?

Last Updated May 4, 2010 1:19 PM EDT

After a disaster like the BP oil spill, it's easy to demonize individuals like CEO Tony Hayward who, when he took on leadership in 2007, promised to focus like a laser on safety. But the catastrophe raises some profound issues around the oil industry in general, and BP in particular, that have been glaring since before the 2005 Texas City explosion. Last week's spill is just the latest in a string of accidents and deaths at BP facilities. Has the company pushed oil exploration beyond the limits of its ability to manage the business safely and with integrity? The answer appears to be yes. Here's why:

Safety isn't sexy. In highly competitive cultures like BP's, safety doesn't win you status or promotions. In the period between 2005 and 2008, all the U.S. oil refineries combined had nine fatalities; BP's Texas City refinery alone had twenty. BP had years of consultant reports warning them that Texas City was a dangerous place to work; one consultant's report quoted men who wondered, as they turned up for work each day, whether that would be the day they died. But even all the soul searching that followed Texas City hasn't prompted an effective response.

"OSHA has found that BP often ignored or severely delayed fixing known hazards in its refineries," said U.S. Labor Secretary Hilda Solis, as she slapped a $87.4 million dollar fine on the company in 2009 for its failure to address safety issues. "There is no excuse for taking chances with people's lives. BP must fix the hazards now." Instead, the company continued to lobby against increased safety regulations.

Revenue is king. As the oil majors struggle to compete with each other, cost-cutting is an endless process. This puts huge pressure on wages and has led refiners to recruit low-paid, often unskilled workers who then have to work too many hours to bring home a decent paycheck. It is said that in Louisiana, BP competes with Burger King for cheap labor. The problem comes when that cheap worker has put in so many hours that he makes mistakes. A burnt Whopper may not pose a huge hazard; an oil platform is a whole different matter. Asset integrity is an aspiration, not a science. The goal of asset integrity is to ensure that, however deep the oil, you never compromise the fabric of the machinery and the plant required to extract it. The problem is that, increasingly, oil is being extracted from depths -- and under conditions -- that no one fully understands. You can say you'll deliver asset integrity â€"- right up until the moment when you can't. Any company that can go a little deeper a little longer stands to make a great deal of money, so the incentive to keep pushing the limits persists. The struggle BP currently has to fix its leak demonstrates how far they've gone out of their own depth. Outsourcing obscures and displaces safety issues. While much of the nation blames outsourcing for eliminating American jobs, its hidden cost is the way it blinds companies to their own processes and responsibilities. We will see this in the years of lawsuits that await BP. They will continue to claim, as they already do, that the fault lay with their contractor, the Swiss firm Transocean. It was primarily Transocean employees -- not BP's -- who died. Regardless of legal niceties, the fact is that once you outsource critical functions, you don't have insight into how the work gets done. The cynical will conclude that that is precisely what outsourcing is for.

BP is far from the first corporation to fall into this trap. When the (also Swiss) water-bottle manufacturer SIGG discovered that their water bottles were not in fact BPA-free (as they'd boasted), they blamed the manufacturer to whom they'd outsourced the bottle lining. While the lawyers have a field day, the hard problem executives have yet to confront is: When you outsource key elements of your business, how do you ever know what is being done in your name?

Some distances can't be bridged. St. James Square in London is the heart of gentleman's clubland. One of its elegant terraced houses was home to the Earl of Lovelace and his wife, Ada, daughter of Lord Byron and an early computing pioneer. Next door is the London Library, the world's largest private lending library, founded by Carlyle. Thackeray was its first auditor and Dickens, George Eliot, Kipling, Shaw, Henry James and T.S. Eliot among its members. It's a very long way from the sulphur-scented streets of Texas City or the storm-tossed waters of the Deepwater Horizon rig. But St. James Square also houses the headquarters of BP. It is impossible to stand in St. James' Square and imagine the life of Gulf oil workers, impossible to appreciate their worldview or life circumstances. Such distance forces the question: Are some companies too big to manage? Has our love of complexity -â€" in engineering and in management -â€" taken us beyond the limits of our ability?

I don't think BP is full of venal philistines who want to despoil the planet. But their repeated deaths and disasters must make the industry ask itself: How much -- in human lives and environmental depradation â€"- are we willing to pay for oil? Does any oil executive have the courage to admit when they're out of their depth? Meanwhile, it might be a good time for governments the world over to ask themselves: Is Big Oil too big to regulate?

More on BNET:
  • Margaret Heffernan On Twitter»

    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.

Comments

Market Data

Market News

Stock Watchlist