Strategic Communications and Marketing News Bureau

Expert: BP settlement right step, but won’t curtail corporate greed

CHAMPAIGN, Ill. –The recent settlement of claims by BP from the Deepwater Horizon oil disaster of 2010 is a step in the right direction, but it won’t solve the most pernicious problem of the entire debacle – corporate greed, says a University of Illinois expert in maritime law and corporate and government relations.

The unwritten story of the BP disaster and subsequent $7.8 billion settlement is the complete and utter failure of strategic management, and what underlies that problem are mercenary chief executives and the culture of greed that has festered on Wall Street over the past three decades, says John W. Kindt, a professor of business and legal policy at Illinois.

“From a business standpoint, CEOs are making strategic mistakes because they are listening to for-profit false prophets instead of bona-fide earnings advisers,” Kindt said. “When you have these obscene salaries, they lead to what I call ‘managerial macho,’ where an executive’s strategic judgment is inversely proportional to their salary. They just lose all perspective because they are focused on the big bucks money for themselves.

“That’s where the debate should really be, because CEOs are playing casino capitalism, taking more and more risks for less and less return, while praying disaster doesn’t occur on their watch.”

According to Kindt, the author of “Marine Pollution and the Law of the Sea,” a six-volume series that examines protecting the world’s oceans while encouraging the development of essential resources, the BP case is a classic example of a lack of strategic vision, since oil spills are accidents waiting to happen.

“Senior management at BP was not paying attention to the most basic information that most people in middle management and the ground-level workers could spot in an instant,” he said. “The IXTOC 1 oil spill of 1979 was very similar to the BP oil spill, and it’s a precedent that all oil companies should be familiar with. But frankly, it would not surprise me at all if senior management and upper management at BP didn’t pay any attention to the lessons that needed to be learned from the past. It wouldn’t surprise me if prior to the BP spill, substantial numbers of BP executives didn’t even know about the IXTOC 1 oil spill itself.”

Kindt disagrees with critics who contend that settling was the wrong move, and that nothing short of a full accounting in public light would have been in the best interests of the public good.

“I find that argument is popular with the legal community, so that they can get a piece of the action, but ultimately it’s a disingenuous one,” he said. “I would look at this from an environmental perspective, but also a maritime law perspective, and how those two interests intersect with strategic business decision-making.”

Kindt says the Exxon Valdez oil spill of 1989 was much smaller than both the Deepwater Horizon and the IXTOC 1 oil spills, but it took Exxon 20 years and a visit to the U.S. Supreme Court to settle its claims.

“Exxon was originally assessed $4.5 billion in punitive damages plus interest,” he said. “They appealed that decision all the way to the Supreme Court, which reduced it to $507 million. I’m sure the legal department of BP is very familiar with that case, and wanted to avoid going on a 20-year litigation bender. So by settling as much as they can, and by getting Ken Feinberg, who oversaw the 9/11 victim’s fund, to administer the initial settlements, what BP is doing is actually extremely smart.”

Given all the intricacies involved, Kindt says Feinberg’s administration of the BP spill has been well done.

“BP has really benefited from trying to settle as many claims as possible, as quickly as possible,” he said. “The Gulf Coast community benefits from settlements rather than long-term litigation. The only parties who really benefit from long-term litigation are the lawyers.”

Kindt also notes that BP has taken a page from Union Carbide’s playbook by emulating how it handled the Bhopal disaster of 1984, when a pesticide plant released 32 tons of toxic gases into the air around Bhopal, India, that killed more than 5,000 people.

“Union Carbide was sued in the state of New York by a multitude of different parties,” he said. “They settled the case by forming a trust fund similar to the one BP has formed, and entering into an agreement with the government of India to pay out of this trust fund for the deaths and the injuries. It got to the point where India and the U.S. basically entered into an international agreement, which is tantamount to a bilateral treaty, to administer these settlement funds.

“While BP is in good stead by pursuing a similar course of action, I would be surprised if many of BP’s senior management were familiar with the mechanics of the Bhopal settlement before the BP disaster happened. It goes to show how important it is to know your history and plan strategically for these types of environmental problems.”

Editor’s note: To contact John Kindt, call 217-333-6018; email jkindt@illinois.edu.

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