BP: too big to fail?

Last night I watched a segment on the PBS Newshour about the consequences of BP failed as a result of its liabilities for the Gulf oil spill.

The conclusion was that a lot of innocent people would suffer. Many British pension funds are heavily invested in BP stock, and retirees would suffer severe loss of income if BP’s stock price collapsed or BP stopped paying dividends over an extended period of time. Some U.S. pension funds also hold BP stock. Then there are BP’s 80,000 employees. I have no reason to doubt that the vast majority of them are doing their jobs well, and have no responsibility for the decisions that led to the Gulf spill.

The people that are responsible, on the other hand, are likely to get off scot-free. BP CEO Tony Hayward received $6.2 billion in cash and shares last year. Even if he loses his job tomorrow, he is not going to have to give it back. The worst-case situation will leave him vastly better off than the people along the Gulf whose properties and businesses have been ruined.

There is no such thing as punishing a corporation. A corporation is an organizational structure and cannot suffer. Only human beings can be punished. Human beings at the head of a corporate respond to economic incentives, which in BP’s case was to protect profits by cutting corners on safety and environmental protection. To offset this, you have to have strict governmental oversight, which the Bush and Obama administrations have failed to provide.

Click on this for the PBS Newshour report on the broad economic impact of BP’s liability.

Click on this for a Bloomberg News report on investor dissatisfaction over BP executive compensation.

Update (10/21/10)

The BP / Obama compensation plan seems to be working better than I thought it would.  Click on this for a Washington Post report.

Update (10/28/10)  Disregard the previous update.  Click on this and this instead.

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2 Responses to “BP: too big to fail?”

  1. Peter Reynolds Says:

    http://peterreynolds.wordpress.com/2010/06/12/the-oil-spill-the-bottom-line-what-obamas-forgetting/

    America and Americans need to remember who their friends are. Obama and the whining American press are trying to pass the buck..

    Like

    • philebersole Says:

      If some big oil company in the North Sea through its negligence ruined the coastline of large parts of Scotland, I imagine people in the UK would be very unhappy, regardless of whether the oil company happened to be headquartered in the UK, USA or someplace else.

      Like

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